the economic analysis of rural road...
TRANSCRIPT
The Economic Analysis of Rural Road Projects
World Bank Staff Working Paper No. 241
August 1976
This paper is prepared for staff use. The views expressed are those of theauthor and not necessarily those of the World Bank.
Prepared by: Curt CarnemarkJaime BidermanDavid Bovet
Transportation Department
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This paper is for staff use.The views expressed are thoseof the authors and notnecessarily those of the Bank.
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
Bank Staff Working Paper No. 241
August 1976
THE ECONONIC A.NALYSIS OF RURAL ROAD PROJECTS
The purpose of this paper is to set forth a general approachfor the economic analysis of rural road projects. In this context, thepaper discusses the shortcomings of traditional economic analyses ofhighway projects which have focused on the quantification of road usersavings. The paper points out that such an approach is specificallyunsuitable for rural roads with low levels of traffic. The authorsemphasize the interdependence of transport and agricultural productionsystems in the rural environment and argue that the analysis shouldfocus on the mechanisms by which transport cost savings are translatedinto increased agricultural production and income. The critical questionsto be answered are: who benefits from the transport cost savings, howwill producers respond to these cost savings, and do other constraintsexist which may prevent the full developmental impact of a road frommaterializing?
From an analytical point of view, rural road projects areseparated into two categories depending on the current level of economicactivity in the area of influence. In areas of low economic activity, aproducer surplus-oriented analysis is reconmended as a means of quan-tifying the benefits of increased economic activity induced by the roadand any complementary investments.
The principles set forth in this paper are gradually beingintroduced in Bank operational work, particularly in the context ofrural development projects. The work at this time does not, therefore,represent established Bank policy, but it reflects the direction inwhich Bank appraisal practices are evolving.
Prepared by: Curt CarnemarkJaime BidermanDavid Bovet
Transportation Department
ACXNOWLEDGEMENTS
Special recognition should be given to David Hodgkinson whoprepared the case study annex and its supportive computer program, andto Asif Faiz who prepared the annexes on preliminary screening criteriaand area of influence. The authors gratefully acknowledge the manyhelpful comments and suggestions received at various stages duringthe writing of this paper from their colleagues in the Bank. Whilewe have benefited greatly from discussions with many people, we arespecially indebted to Anthony Churchill, Arturo Israel, Frida Johansen,E. V. K. Jaycox and Anandarup Bay for their sustained interest andsearching reviews of successive drafts. Special thanks should alsobe given to Jean Louis Forcina, Mahmoud El-Helw and Mustafa Nour, whowere involved in the early conceptual stages, to William Jones andLeon Miller who assisted in developing the case study, and to PedroTaborga and William Bannan who assisted in the development of a com-puter program for the case study. The authors alone, of course, areresponsible for any remaining errors of omission or commission.
THE ECONOMIC ANALYSIS OF-RURAL ROAD PROJECTS
Table of Contents
Page No.
I. INTRODUCTION ..... .. .......... 1
II. BACKGROUND. ........ ..... ..... ......*.... 2
III. BROADENED APPROACH .................... 4
A. Case I ............................................... 4B. Case II ........ *...... 6 6
IV. DISTRIBUTION OF BENEFITS ............................. 11
V. RELATIVE MAGNITUDE OF COST SAVINGS ................... 13
VI. COEPIPEvNTARY INVESTMENTS .. ... ... ............... 14
VII. ORGANIZATION AND STAFFING IMPLICATIONS ............... 15
VIII. SCREENING PROCEDURES FOR RURAL ROADS...*............ 16
IX. AREA OF INFLUENCE .......................... ......... 16
X. DESIGN STANDARDS ..................................... 17
XI. SUMMARY ......................................... 17
ANNEXES
1. Economic Analysis - Producer Surplus Approach2. Case Study3. Preliminary Screening and Selection of
Rural Roads - A Framework4. Area of Influence5. Design Standards
THE ECONOMIC ANALYSIS OF RURAL ROAD PROJECTS
I. INTRODUCTION
1. This paper proposes an operational approach to the economicanalysis of rural roads. 1/ The proposed approach does not represent asharp break with current Bank practice nor is it a sophisticated theo-retical exercise. It proposes a systematic application of the differenttypes of analysis already undertaken in various sectors which can bebrought together for a fuller evaluation of rural road projects. Theapproach is intended both for Bank use and as an aid to officials indeveloping countries who are involved in selecting and evaluating ruralroad projects. The proposed approach is likely to be further amplifiedand improved in the light of operational experience with selected ruralroad projects and a long-term research program currently in progressto monitor the socio-economic impact of road projects in Brazil, Ethiopia,Kenya, Madagascar and Yemen. A major goal of such further work is todevelop as far as possible simple "rules of thumb" for the analysis ofrural roads.
2. The paper begins with a discussion of the shortcomings oftraditional highway project analysis when applied to rural road projects.Three essential elements for achieving the full developmental impact ofroad projects are then identified. Next, rural road projects are sepa-rated into two categories, depending on the current level of economicactivity in the area, and appropriate broadened analyses are developedfor each case. The theoretical basis for the producer surplus analysis,recommended for use in less-developed rural areas, is presented as Annex1 to the paper. Annex 2 presents a sample Case Study, using a newlydeveloped computer program to illustrate the application of this broadenedapproach. Annex 3 covers preliminary screening criteria for rural roadprograms. Annex 4 deals with the determination of area of influence, andAnnex 5 discusses the problem of proper design standards for low-volumerural roads.
1/ Rural roads are defined as roads with low traffic volumes in pre-dominantly agricultural areas. They may be feeder roads, tertiaryroads or secondary roads of a non-interurban character. For anearlier discussion of the subject, which reviewed the literature andproposed a linear programming approach, see Arturo Israel: AppraisalMethodology for Feeder Road Projects, World Bank Staff Working Paper,No. 70, 1970.
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II. BACKGROUND
The central problem in the evaluation of road projects isto forecast economic activity and the associated demand for transport.In these forecasts, transport economists generally distinguish betweentraffic that is expected to materialize without the transport costreduction (i.e., "inormall" traffic growth) and traffic which is inducedby the cost reduction itself (i.e., "generated"f traffic). 1/
4. Until recently, the Bank's lending program for road transportconcentrated on areas where economic activity and, hence, "normal"traffic, was already significant. Expressed in a slightly differentway, the Bank's road investments were essentially following the demand.or transport. However, with the Bank's shift in focus towards lendingactivities that will develop poorer rural areas, more road projects arebeing proposed where "normal', traffic levels are either low or negligible.Tn such situations, the economic merit of the road will depend on whether.Large increases in future economic activity and traffic will occur overwhat would otherwise materialize. These increases may be attributed to:(a) the reduction in transport costs brought about by the road; (b) on-going or planned development projects (e.g., agriculture, forestry, etc.);or (c) the joint effect of (a) and (b).
rec ses The conventional methodology for appraisal of road projects-ivrecses the quantification of road user savings. This methodology is
well-suited for cases where normal traffic (or its projected growth) issubstantial and transport cost savings are a reliable measure of projectbenefits. 2/ However, this analysis, which puts the focus on the roadusers, usually neglects to consider the mechanisms through which roaduser savings are translated into new output and income. It also fre-quently ignores the existence of other constraints in the area of in-fluence of the road which limit its developmental impact. This neglectof the developmental aspects of road investments is a major weaknessin analyses of nearly all road projects, particularly those which are predi-cated on large increases in generated traffic.
1/ For our purposes here, an additional distinction between "'diverted"and T"generated" traffic may be ignored.
2/ For a review of this methodology, the social surplus model whichunderlies it and some of the model's limitations in connection withroad projects, see Herman G. van der Tak and Anandarup Ray, TheEconomic Benefits of Road Transport Projects, World Bank StarfOccasional Paper, No. 13, 19713 and A. A. Walters, The Economics ofRoad User Charges, World Bank Staff Occasional Paper, UoJ. 5, 19 68.For an instructive earlier discussion of the benefits of road projects,see Robert T. Brown and Clell G. Harral, "Estimating Highway Benefitsin Underdeveloped Countries,'' Highway Research Record, No. 115, January1965.
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6. From an analytical point of view, it is imperative to focuson and substantiate the developmental impact of all road projects whichare predicated on large increases in economic activity and traffic.Currently, we often find inadequate explanations of the forecastingmethods used in project analysis, i.e., the underlying assumptionsare not made explicit. For instance, it should always be clearlyspecified whether the projected changes are exogenous to the roadimprovement, i.e., independently programmed agricultural developmentprojects in the vicinity, or are assumed to be generated by the roadimprovement itself. 1/ In all cases, but particularly when the latterargument is being maTe, we need to investigate the rural economy insome depth. Instead of taking for granted favorable project effects 2/on output and income in the area of influence of the road, and thenfocusing the bulk of the analysis on the quantification of road usersavings, we need to examine three critical points:
(a) Distribution of Benefits. To whom do the transportcost savings accrue (i-.e., how are they distributedamong producers, truckers, traders and other partiesaffected by the road, including consumers)?
(b) Producer Response. How will producers respond to thelower transport costs as reflected in higher farmgateprices, lowr input costs, and improved quality ofservice? In evaluating such producer response, it isimportant to assess whether transport cost savingspassed on to the producer are in fact of sufficientmagnitude to stiralate increased production; and
(c) Non-Transport Constraints. Do other constraints existwhich may prevent the producer from responding to thisincentive (i.e., does he have the required resources,attitudes and risk preferences)?
If these three elements are not examined closely, the forecast changesin economic activity and traffic are little more than guesswork.
1/ As noted in paragraph 4 above, the forecast changes may also beattributed to the joint effect of agricultural development effortsand transport improvements, in which case an integrated analysis iscalled for (see Case II below). In all cases, the regional distri-bution of ongoing and planned agricultural investments should beinvestigated, to ensure that economic activity estimates have abasis in fact.
2/ Of course, the development impact of a road may have some negativeaspects as well, such as the substitution of imported goods forlocally produced items, increased migration, etc.
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7. The broadened approach outlined below suggests, in fact, thatthe above three questions become the central focus of the analysis,particularly for rural roads which anticipate substantial "generated"traffic or induced benefits. Moreover, the approach suggests that insuch cases, project benefits be expressed directly, in terms of valueof net output and income rather than indirectly, in terms of road usersavings. This production-oriented interpretation of project benefitsis more consistent with the Bank's heightened interest in rural develop-ment becauise it focuses directly on farm-level changes.
III. BROADENED APPROACH
8. We propose that the type of analysis for the evaluation ofrural road projects be determined on the basis of current and expectedlevels of economic activity in the area of influence. Since economicactivity is the major determinant of traffic levels, the relativeimportance of cost savings on normal traffic will decline as we movefrom the high activity end of the continuum to the low activity end.Conversely, the proportion of induced or "generated'? benefits in thetotal benefit stream will increase as we move towards areas thatcurrently have a low level of economic activity. On the basis of thisconceptual framework, we have classified roads into two broad cases,each requiring a different approach.
9. Case I covers proposed roads in areas where the level ofeconomic activity is already substantial or is expected to be substantialdue to ongoing or planned rural development. With certain modificationsthe road user savings approach is reliable here. Case II applies toproposed roads in less developed rural areas. In this case a production-oriented economic analysis should be applied. These two cases arediscussed in detail in the following sections.
A. Case I
10. Case I comprises roads in areas where the level of economicactivity is already quite high, or is expected to be substantial due toongoing and planned rural development. The demand for transport (rfnormalrfor "witbout-projectTt traffic) reflects this activity, justifying eithernew road construction, widening of an existing road or making the roadan all-weather facility. This situation is common in developed areasof many countries. As shown in Figure 1, the benefits in this case arelargely road user savings on normal traffic, and the magnitude ofdevelopmental benefits is comparatively small. For purposes of our
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classification, we are assuming that in Case I situations, benefits onnormal traffic provide a reliable basis for the economic justificationof the road. However, additional benefits induced by the reduction intransport coats may be large, and this developmental aspect should neverbe ignored and should be quantified wherever possible.
C (C1-C2 ) (Q1-O) = benefits on normal trafficTransportCost
.1/2 (C1 -C 2 ) (Q2-Ql = benefits on generated\____________________ traffic
________________ = development benefitsC2 's,
Demand for transport
Transport Volume0 ~Q 1 Q2
FIGURE 1: TRANSPORT DEMAND FUNCTION FOR CASE I
11. Since in most Case I situations, the bulk of the benefits stemfrom the savings on normal traffic, the analysis can reliably be basedon the quantification of road user savings for normal traffic. However,in order to assess the magnitude of the developmental impact, this analysisshould be broadened to consider:
(a) The probable distribution of benefits from4the project,i.e., how are the affected parties (producers, truckers,traders, transport companies, consumers, government, etc.),likely to share the transport cost savings due to roadimprovenent (paras. 22-25);
(b) The complementary investments which might eliminatecertain constraints in the area of influence of the road;e.g., lack of storage facilities (paras. 28-32); and
(c) The consistency of the proposed project with a RegionalDevelopment Plan, a Transport Master Plan or a NationalDevelopment Plan.
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Adequate attention to the above factors can significantly enhance thedevelopmental aspect of the road investment.
B. Case II
12. Case II consists of situations in which there is little trafficon the road and low levels of economic activity in the area of influence.In this case, developmental effects are crucial and must become the focusof analysis. The importance of traffic generated by the project relativeto normal traffic, depends not only on the magnitude of the increase inex-farnr price 1/ (brought about by the reduction in transport cost trans-ferred at least partially to farmers), but also on the effect on agri-cultural input prices and complementary investments. These factors arediscussed in detail in Annex 1. The size of this developmental benefitis illustrated in Figure 2a by the triangle under the demand curve. Thesize of this triangle is much larger relative to the normal cost savingsrectangle than in Case I. 2/
C = Ag. transport cost, $/ton P = Ex-farm price, $/tonV = Ag. volume transported, tons Q = Ag. volume prodiuced, tons
'2
C2 Pl
VIV2 Q1 Q2
a. Transport Demand b. Agricultural Supply
FIGURE 2: TRANSPORT DEMAND AND AGRICULTURAL SUPPLY FOR CASE II
1/ This price being defined as the price received by the farmer for hisproduct at the farmgate.
2/ The implicit transport cost existing in the absence of the road projectmay, in fact, be so high that there is zero traffic volume; that is,subsistence farming may be practised without any surplus being marketed.
13. Figure 2b presents an alternative way of analyzing the changesin the production system due to the project. At the without-projectprice Pl, quantity Q1 (equivalent to V1) is produced. Following the con-struction of the road, the ex-farm price increases to P2, inducing farmersto expand output to Q2 (equivalent to V2 ). The gains in farmers' welfareare measured by the sum of the shaded rectangle (representing gains onnormal output) and the shaded triangle (representing gains on generatedoutput). The shaded areas in Figures 2a and 2b are equal. The transportdemand function therefore reflects the underlying conditions in agriculture,and thus the growth of transport demand cannot be reliably forecast unlessthe more fundamental changes in agriculture are analyzed. Indeed in manycases, the existing traffic will be so low that no meaningful analysis canbe done on the basis of observed transport data. Moreover, measuringbenefits as the change in the area under the transport demand function maybe seriously misleading in many cases. For example, the agriculturalsupply curve, shown in Figure 2b, on which the transport demand curve isbased, may not reflect economic costs correctly because of, say, a taxon output. The farmers' perceived benefits will, in that case, still bereflected in the shaded area in Figure 2a but that area will understatethe actual benefits. Nonetheless, the equivalence demonstrated in thesimple case above, does warn against mixing two different approaches.The benefits measured on the basis of direct analysis of agriculturalchanges should not be added to the benefits measured as areas under thetransport demand curve. Rather, if both measures are used, they shouldbe used to cross-check each other.
14. Thus, in the case of rural roads, the transport demand approachdoes not entail any special advantages of presentation or measurement.Little traffic, if any, can be observed before the project, forcing theanalyst to formulate and estimate explicitly all the components which areimplicit in the transport demand function (e.g., cost estimates, productionresponse, area affected, etc.). Once this is obtained, it is easier, andgenerally more reliable, to proceed according to the producer surplusapproach rather than adding one more stage by constructing a transportdemand function. In any event, a detailed analysis of the production andtransportation sectors is crucial.
Economic Analysis - Producer Surplus Approach
15. In view of the above arguments, it is clear that, in practice,it is preferable to focus directly on the basic economic changes in thearea of influence due to road improvements and any complementary investments,rather than to speculate on possible changes in traffic volume based, forexample, on simple trend analysis. 1/ At the outset, baseline data must be
1/ In the process of project preparation, it may be desirable to first applysimplified screening criteria in order to limit the number of roads forwhich a thorough economic analysis is necessary. Such screening criteriaare discassed in Annex 3.
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obtained for the agricultural (or other rural) sector. These data includecrop areas, yields, production costs, ex-farm prices, marketed output andlocal consumption. Existing transport costs and prices must also bedetermined. This baseline information describes the net income, orproducer surplus, of farmers and transporters prior to the proposedinvestment.
16. To determine project-induced changes in the area of influence,it is necessary to forecast the above data over time in both the with-and without-project cases. The without-project forecast should considerhistorical production trends as well as development programs alreadyscheduled for implementation. In the with-project case, the questionbecomes one of predicting the increased production induced by theinvestment package.
17. Although the theory underlying the producer surplus approachis presented in detail in Annex 1, a brief introduction is provided here.First, it is assumed for simplicity in the analysis below, that transportcost savings due to the project are fully passed on to the producer inthe form of a higher ex-farm price. 1/ This assumption makes it possibleto focus exclusively, for the time being, on farm-level changes. 2/ Second,it is assumed that all production is marketed over the improved road.
18. Figure 3 illustrates the production situation for a givencommodity, maize, in a given year. In the without-project case, quantityQ1 of maize is produced and sold at ex-farm price Pl. In the with-projectcase, several types of changes may occur:
1/ The important question of the distribution of transport cost savingsbetween farmers, transporters, and middlemen, is discussed in paragraphs22 through 25.
2/ Market prices for agricultural commodities are assumed constant in thewithout- and with-project cases in order to quantify benefits at thefarm-level. If, however, project-induced agricultural output is suffi-cient to cause a decline in market prices, a transfer of benefits fromproducers to consumers will occur and total benefits will change some-what. This question should be addressed in the project appraisal ifimportant.
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(a) Savings on transport of farm output may be passed on tothe farmer in terms of a higher ex-farm price, P2. Consequently, maizeproduction increases from Q1 to Q2 along the marginal coat curve M1l. 1/
Maize price, $/tonMCI MC2
p2
P1
Output, tonsQ, 02 Q3
FIGURE 3: PRODUCTION OF MAIZE IN YEAR N
(b) Savings on transport of farm inputs may result in adecrease in production costs for any level of output; this is reflectedby the shift of Mli to MG2. At the new ex-farm price of P21 outputwould expand from Q2 to Q3.
(c) If the two effects above occur together, output wouldincrease from Q1 to Q3. In fact, these two effects may well occursimultaneously, since in general a road improvement project may beexpected to bring about lower transport charges both to and from thefarm. 2/ The net change in producer surplus, or farm-level benefits,associated with this economic change is shown as the shaded area inFigure 3.
1/ Farmers might also be able to market new, higher-valued crops iftransport costs and spoilage are sufficiently reduced. These cropswould be depicted by new supply curves.
2/ Reductions in the two directions need not be of equal magnitude.If the volume of inputs and other goods bought by farmers is lowcompared to their marketed output, the tariff reductions in the twodirections may differ.
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(d) In addition, changes in the agricultural production systemcan take place independently of the road project. Such a change couldbe represented in Figure 3 by a further shift of the supply curve. Ifthis change were due to complementary investments (e.g., irrigation orextension), the costs of these programs would have to be included inany integrated analysis of economic benefits in the area of influence.However, such shifts would be included in the without-project case ifthe investments could reasonably be assumed to take place in any case.
19. Benefits such as the shaded area in Figure 3 must, of course,be summed up year-by-year and crop-by-crop to obtain total project benefits.The project rate of return would then be calculated by comparing totalproject benefits with total project costs (road construction and maintenance,and if applicable, agricultural extension, irrigation, etc.).
20. Several important adjustments to this analysis should bementioned: 1/
(a) Vehicle operating cost savings on non-agriculturaltraffic (e.g., passengers and general freight) canusually best be quantified by the traditional road usersavings approach. Benefits on such traffic should beadded to the incremental economic benefits on agri-cultural traffic illustrated in Figure 3.
(b) Transport cost savings may not be fully passed on tothe farmer. In such a case, the increase in ex-farmprice, and hence the incentive for greater production,is not as great as assumed in Figure 3. The portionnot passed on to the farmer represents increased netincame of transporters and middlemen,or benefits toconsumers,and should be added to farm benefits. Inthe case of government-controlled ex-farm prices,the benefit to farmers may be limited to increasedmarket accessibility and lower-cost production. Ifmarket prices for the transported commodity declineas a result of the project, consumer benefits mustbe considered.
(c) A correction should be made in the case where localconsumption of certain commodities is important. Thisis because local consumers or users of the commodity
1/ See Annex 1 for a full discussion of these adjustments.
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now face a higher price, offsetting their gain asproducers. 1/
21. In short, the producer surplus analysis quantifies, withinthe area of influence, the developmental impact of transport cost savingsand complementary investments, thus linking project benefits to increasesin primary production. The benefits quantified by assessing changes inagricultural supply represent fundamental changes; such changes arereflected only indirectly through the analysis of transport demand. Thecomplex relationships between transport improvements and productionincreases clearly suggest the need for an integrated approach to ruraldevelopment. The use of the producer surplus analysis in Case IIsituations provides a broader view of rural road project benefits, andfocuses attention on the question of developmental impact.
IV. DISTRIBUTION OF BENEFITS
22. The distributional aspects of benefits are considered fortwo reasons: (1) to evaluate incentives for increased production; and(2) to evaluate project impact on the distribution of income. 2/ Changesin project scope may lead to a more equitable distribution of income.For instance, farmers in a certain area who benefit from road improvementsmay be predominantly larger farmers (i.e., those who have some bargainingpower vis-a-vis truckers or middlemen, or those who are able to expandproduction in response to lower transport costs). In such a case, thedistribution of benefits may be improved by including in the project comple-mentary investments which would enable smaller farmers to respond to theincentives created by the road improvement.
1/ A similar correction should be applied to commodities also suppliedto other markets over roads not benefiting from the project. Thepurchasers in these other markets would face increased prices, thussuffering a loss which offsets in part the producer gain. The magnitudeof this correction decreases with increasing elasticity of demand inthe alternative market, declining to zero when demand elasticity isassumed to be infinite.
2/ In this paper, we address the question of project impact on the distri-bution of income only indirectly. Weighting benefits according to therelative income status of various groups and derivation of social ratesof return, is a possible direction for further research on rural roads.The methodology for this type of exercise is outlined in Lyn Squireand Herman G. van der Tak, The Economic AnalYsis of Projects, JohnsHopkins University Press, 197.
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23. If transport savings derived from the road investment arenot transmitted to producers, either because of non-competitive trans-port services or due to government controls, there may be littleincentive for producers in the area to increase output, i.e., lowdevelopmental impact. In Iran 1/ and Colombia, it was found thatmiddlemen captured a large proportion of the transport cost savingsderived from road investments, so that the benefits to producers orconsumers were minimal. Consequently, the incentive structure facedby producers was not significantly altered by the road improvementsand was not conducive to increased productivity and output. In somecountries producer prices are officially fixed and thus unaffectedby transport cost savings. The national marketing board or othermiddleman which collects and transports the marketed produce wouldbe the main beneficiary of the road improvement. In such cases, theonly benefits to producers may be in the form of imDroved transportservice, leading to timely receipts of inputs, efficient movementsof produce, and possibly,access to new markets. Reduced spoilageand storage requirements may result, but benefits (and developmentalimpact) will not be as large as would be possible if cost savingswere passed on.
24. A similar pattern may be characteristic of Brazil, accordingto an analysis by Bank staff of the distribution of cost savings fromroad improvements in three of its northeastern states. The analysisrevealed, in this case, that the lion's share of the benefits may infact be captured by transport companies, which exert a large degree ofcontrol over the distribution system. In addition, it was observed thatthe land tenure and agricultural credit systems may decisively influencethe distribution of benefits accruing from feeder and secondary roadimprovements. For example, land-owning farmers may benefit from a roadimprovement while tenants may not. In all these cases, considerationshould be given to policies (and complementary investments) which willoptimize the impact of the road investment. Policy alternatives couldrelate to the modification of agricultural and transport price structures,the promotion of competition among transporters, land reform, accessto credit and so on.
25. The prediction of the likely distribution of benefits framrural road projects, though critical to the whole analysis, is quitecomplex. It involves a thorough study of the production, marketing,distribution, and consumption systems. The likely reaction of these
1/ Herman G. van der Tak and Jan de Weille, Reappraisal of a RoadProject in Iran, World Bank Staff Occasional Paper, No. 7, 19C9, pp.72-73.
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systems to a change in the transport cost structure may be estimatedby analyzing the reaction to similar changes in the past. Wheremechanisms for the distribution of road project benefits are relativelyhomogeneous within specific areas, it may be possible for the distri-butional analysis to be carried out on a national or regional scale.
V. RELATIVE MAGNITUDE OF COST SAVINGS
26. Even if the trucking and marketing systems are competitive(so that reductions in transport costs due to road improvement arepassed on to producers), it is frequently unclear whether transportcost savings are always significant enough to induce increased pro-duction. An example may make this clear. According to an unpublishedstudy in Kenya, where both the marketing and transport systems aresaid to be quite competitive, the impact on farmgate prices caused bycertain road improvements was on the average less than 5% of productprice, even when all savings in vehicle operating costs were assumedto be passed on to producers. Producer response to the incentivescreated by road investment should, in such circuwmstances, be givenclose scrutiny.
27. A careful analysis is thus required to determine whether ornot the commodities in question are "transport-intensive." Other thingsbeing equal, the derived demand for transport will appear to be moreelastic where the expenditure represented by transport is large relativeto other costs. Therefore, a fixed reduction in transport cost per tonhas a greater relative impact on the profitability of a low-cost commodity.This, of course, implies that the elasticity of demand for transport variesaccording to the crops involved; rice and rubber producers are likely tobe affected differently by a reduction in transport cost, and their responsewill probably vary accordingly. Tn view of this fact, one should be waryof high estimates of t'generated traffic,, or developmental impact in roadproject analyses unless the transport cost savings that are passed on toproducers constitute a significantly large proportion of total productioncosts, or unless there are strong reasons to believe that the elasticityof supply is very high. 1/
1/ There may be a situation where the relative importance of transportcost savings is not very great but the producer response may never-theless be significant. This may occur, for instance, if the absolutemagnitude of the cost savings is large, or if the reduction in transportcosts makes the difference between profitability and non-profitabilityof a certain commodity (i.e., a threshold for "leconomic"' productionis reached).
VI. COCPLEMENTARY INVESTMENTS
28. Areas with low economic activity cannot be approached with thepreconceived notion that a road is the only investment needed in the area.Other bottlenecks, like lack of irrigation, extension services, creditand so forth may be equally or more important than the lack of a road;if these problems are not dealt with, the impact of a road may be verylimited. Producers who would respond to the opportunities created bythe reduction in transport costs, for example, may not have access tocredit and vital inputs with which to increase output. In such situations,road improvement does not result in real incentives unless accompaniedby complementary investments.
29. The first Bank-assisted highway project in Botswana is an exampleof limited impact from road investment because of insufficient attentionto other development constraints in the area of influence of a road. Theevaluation report concludes that the low effective rates of return on manyof the roads were due to a misplaced emphasis on transportation ratherthan to other bottlenecks related to the livestock industry. Accordingto the report, the mechanisms by which important improvements in transportinfrastructure were to induce increased livestock production were notanalyzed in sufficient detail. Bottlenecks that seem obvious in retrospect,like marketing practices, the role of the trucking industry and veterinaryfactors, were not fully taken into account. Similarly, another internalBank evaluation report observes that in the areas studied, feeder roadswere not always the most important constraint to development. Primitiveproduction techniques and deficiencies in agricultural credit and marketingsystems were found to be equally or more important than roads, and lackof attention to these problems resulted in a very low impact attributableto roads.
30. In light of these considerations, the feasibility of roadinvestments in areas with low levels of economic activity can only bedetermined through an integrated economic analysis. As described in para-graphs 15 to 21 above, such analysis examines local production conditionsin detail and indicates what investments are needed to increase output andincome in the area. The key idea underlying this integrated approach isthat the incremental production on which the project is justified needsto be predicted quite carefully rather than taken for granted. Should itbe found that complementary investments or policy changes are needed (inaddition to the road investment) to attain predicted increases in output,then such programs should be carried out either jointly or in proper phasewith the road investment.
31. In order to keep the costs of an integrated analysis at areasonable level in relation to the low investment cost of each road,it may be possible to analyze production conditions on a regional basisrather than on an individual road basis. If, for example, there are strong
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regional similarities in cropping patterns, soil types, extensioncapability and so forth, a single analysis may suffice for several roads.In this connection, the Bank is exploring the possibility of using EarthResources Technology Satellite (EFRTS) photographs, and other remote sensingdevices, to collect basic data concerning land capability, croppingpatterns and route location. The preliminary screening criteria discussedin Annex 3 may also be useful in limiting the amount of detailed analysisrequired in the initial steps.
32. An extreme type of Case II situation is that of the penetrationroad. In this case, there is no existing traffic and there may be noexisting population. This implies that the entire set of conditionsrequired to support habitation and production must be provided. Here itis apparent that roads are a necessary condition for development, butmust be considered in the context of an integrated scheme. Settlementplanning, water, schools, and marketing systems may all have to be setin motion simultaneously. Despite the large production potential of anunexploited region, a host of constraints, in addition to transport, willbe found.
VII. ORGANIZATICN AND STAFEING INPLICATIONS
33. In cases where rural roads serve relatively undeveloped areasor where transport does not appear to be the main or only constraint todevelopment, it is important that an integrated multisectoral approach betaken. Because rural roads will typically be only one of many inter-dependent components needed to realize the development potential of suchan area, it is important that all parties concerned try to harmonize theirdifferent programs into a critical mass of effort.
34. Planning units within highway authorities should develop theircapacity for undertaking or promoting an integrated approach for thoserural roads where such an approach is required. 1/ As far as the Bank isconcerned, missions related to rural roads in areas of low economic activityshould include, in addition to transport specialists, an agronomist and/or
1/ Proper planning, financing, and execution of rural road constructionand maintenance works is a serious problem in many developing countries.While this paper focuses upon the economic analysis of rural road projects,it should be noted that the organizational problems in this field, arecomplex, particularly when rural roads are viewed in the overall contextof rural development. Work on the organizational aspects of ruralroads is presently proceeding in the Bank.
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an agricultural economist. In some cases, a sociologist/anthropologistmay be required. Consultant terms of reference should be modified toreflect an integrated approach to the analysis of such roads, with emphasison the effect of transport cost reduction on agricultural productionfunctions and the behavioral response of the producer.
VIII. SCREENING PROCEDURES FOR RURAL ROADS
35. Government agencies responsible for road construction are oftenfaced with a large number of proposed roads - usually far more than canbe appraised in detail within financial and administrative constraints.Criteria for the preliminary screening of rural roads from among a largenumber of alternatives are clearly needed.
36. There are a number of unresolved questions regarding the develop-ment of appropriate screening devices.. First, since it is necessary toprecisely define ideal selection criteria, should project choice be basedon the traditional concept of economic efficiency (as discussed in thetext), or should the criteria include considerations related to publicsavings and incame distribution? Second, are there inexpensive and easilyoperable rules which will screen projects for in-depth analysis betterthan random selection? Third, which among the several alternative screeningrules, all of which may be better than random choice ,is to be preferred?Plans are underway for a comparative study program in which a number ofroads will be evaluated by alternative screening procedures as well as bya full-scale economic analysis. In Annex 3, a screening technique adaptedfrom suggestions in transport literature is presented for illustrativepurposes.
IX. AREA OF INFLUENCE
37. The area of influence of a rural road is defined as the potentialarea served, impacted or modified by the road in its immediate geographicalenvirons. Within the impacted area, the implementation of the road projectis likely to alter the land use pattern, production costs and revenues,and marketing and distribution arrangements. The area of influence istherefore a critical variable in assessing the magnitude of developmentalbenefits deriving from an increase in agricultural production. A detaileddiscussion of factors influencing the delineation of areas of influenceis presented in Annex 4.
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X. DESIGN STANDARDS
38. Care must be taken that the road design standards correspondto the expected traffic level. In connection with integrated projects,there is an inherent danger that roads may be overdesigned if the overallrate of return is high enough to "absorb" more than a minimum cost design.Annex 5 contains a brief discussion of appropriate design standards forrural roads.
XI. SU RY
39. The development of guidelines for the economic analysis ofrural roads ref'lects the Bank's increasing emphasis on rural developmentand a consequent shift in transport project lending toward rural roadsrather than highways. The effective preparation and evaluation of ruralroad projects requires appropriate economic, engineering and organizationalprocedures. This paper attempts to shed some light on these matters,par-ticularly as regards the economic analysis.
40. To facilitate the economic evaluation of road investments, aninitial distinction (see Table 1) between Case I and Case II roads isnecessary'. The approach suggested for Case I roads, where economicactivity in the area of influence is moderate to high, focuses on thequantification of road user savings as the principal source of projectbenefits. For Case II roads, where economic activity is lower, heavyemphasis should be placed on direct analysis of farm-level changes. Forboth Cases I and II, appropriate pre-selection or screening criteria needto be developed. Annex 3 discusses further the requirements of screeningprocedures for Case II roads.
41. The detailed analysis of promising Case II roads should becarried out using the producer surplus approach. As the name implies,this approach is oriented toward agricultural producers - the targetbeneficiaries of rural road projects. The developmental impact of CaseII roads is portrayed by attaching specific importance to questionsregarding benefit distribution, producer incentives and non-transportconstraints within the area of influence. While the emphasis is on thelikely response of producers, it is not suggested that the benefits totransporters, middlemen and final users be neglected. The analysis may,in certain cases, be consolidated by considering a group of similarroads together.
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TABLE 1
Characteristics of the Economic Analysisof Riral Road Projects
Category Case I Case II
Regional Well developed; Less developed; rangingCharacteristics high level of from medium to zero level of
economic activity. economic activity.
Traffic Lsvel Over 20-50 vehicles Up to 20-50 vehiclesper day. per day.
Method of Road user savings, Principally producer surplus,Analysis 1/ measured on the supplemented by non-agricul-
basis of expected tural vehicle cost savings.traffic levels.
Main Focus of Normal traffic Agricultural production system;Analysis volume; vehicle transfer of transport savings
operating cost to producers and product users;savings. complementary investments may
be required to assure fulldevelopmental impact.
Nature of Major Transport cost Increased farm production andBenefits savings, measured net income; improved transport
on the basis of service; increased net incomeexpected traffic in distribution sector.levels.
Remarks Should also consider Considerable investigation ofdistribution of agricultural production, distri-benefits and need for bution, and marketing systemscomplementary required. Integrated approachinvestments. recommended. Should also
consider potential impact ofproject on users of transportedproducts.
1/ As discussed in paragraphs 12 through l4 the analyses developed forCase I and Case II, although following different methodologies, produceequivalent results.
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42. On the subject of engineering standards, the paper emphasizesthe need to avoid overdesigning roads which carry low traffic volumes.Traditional highway engineering standards may not be appropriate forrural roads in areas of low economic activity.
43. The integrated approach advocated for Case II rural roadsituations implies certain organizational changes. Within the Bank,formal consultation and joint efforts between transport and agriculturedivisions should be further encouraged. Terms of reference for feasi-bility studies must stress an integrated approach to the rural accessproblem and rural road missions should include input from agriculturalists.Finally, highway authorities should be encouraged to develop theircapacity for undertaking or promoting an integrated analysis of thoserural road projects where such an approach is required.
ANNEX 1Page l
ECONOMIC ANALYSIS - PRODUCER SURPLUS APPROACH
Introduction
1. The purpose of this Annex is to describe the theoretical basisfor the economic analysis. The transport demand approach is presentedfirst, as an introduction to the producer surplus approach. 1/ Bothmarginal cost and average cost methods for computing producer surplusare given. Then, various adjustments to the basic analysis are discussed,concluding with the critical area of benefit distribution. Practicalmeans for implementing the producer surplus approach are given in Annex 2in the form of a case study, and in Annex 3 in terms of a preliminaryscreening procedure.
2. The approach developed here represents a broad analysis of theimpact of a rural road project. This measure of project benefits combinesfour distinct effects:
(i) The incremental surplus (incremental revenues minusincremental costs) realized by various producers becauseof higher producer prices, lower production costs, andimproved market access. Costs are measured in economicterms, so the surplus does not necessarily correspondto incremental financial profits.
(ii) Benefits to users of the products transported, ifmarket prices decline as a result of the roadimprovement.
(iii) Losses that may accrue to users of the products inother markets who may face higher prices.
(iv) Changes in profits realized by middlemen and suppliersof transport services throughout the distribution system.
3. The first effect is usually of major importance, and predictionsof changes in production constitute the major source of difficulties inthe appraisal of road investments. The other three effects will bediscussed later.
1/ Other terms used to describe the producer surplus approach include"social surplus," 'rvalue added,," and "incremental net income."
ANNEX 1Page2
Transport Demand Aproach
4. Ih quantifying benefits due to road investments, the road usersavings analysis, which focuses on the demand for transport, is the mostfamiliar. Thus, in order to start from a well-known point of view, andto complement the discussion of paragraphs 12 to 14 in the text, thisAnnex will begin by discussing the transport demand associated with agri-cultural production. However, it should be emphasized that this demandis derived from the agricultural supply function.
5. Figure 1 illustrates the components of transport demand in asimplified Case II situation. As an example, only the transport of agri-cultural produce from farm to market is considered, and it ia assumed thattransport cost savings are fully transferred to agricultural producers.Changes in transport demand due to the road investment occur as follows:
(a) Without the road investment, transport demand for agri-cultural produce is illustrated by the demand curve D ,which is drawn with th.e implicit assumption of constantinput prices. Given the initial transport cost Cl, thevolume of agricultural produce moved is Q1 .
C
TransportCost
$/tonbenefits due to lower input prices
C1 < benefits due to higher farmgate prices
benefits due to combined effect
C2
Q1 Q2 Q3 Transport of AgriculturalOutputs (tons)
FIGURE 1: DEMAND FOR TRANSPORT OF AGRICULTURAL OUTPUTS IN CASE 11
ANNEX 1Page 3
(b) The demand for transport of farm output shifts due to adecrease in farm input costs brought about by the roadproject. That is, the transport cost reduction on farminputs leads to greater farm production at any given ex-farm price and hence increased demand for transport offarm outputs. This change is represented by the shiftin farm output transport demand from D to D2 . At theoriginal output transport cost of Cl, the benefit dueto cheaper input transport is the horizontally-shadedtrapezoid, and Q2 tons of farm output are transportedto market.
(c) In addition to lower delivered prices for agriculturalinputs, the road project may directly cause an increasein farmgate prices for agricultural output, equal to thedecline of transport cost from C1 to C2 in Figure 1. Thisoutput price stimulus leads to greater production at giveninput prices. Moving along the demand curve D2, transportof farm output increases from Q2 to Q3 1 giving rise tobenefits shown as the diagonally-shaded trapezoid inFigure 1.
(d) If the project consists not only of the road improvementbut also of complementary investments in agriculture, thenfurther shifts in the farm production function will occur.These shifts will also be reflected in the farm outputtransport demand function, displacing the demand curve outto the right and giving rise to greater benefits. It isimportant to determine whether the other investments arestrictly a part of the road project or should be consideredas part of the without-project case. If these benefits areattributed to the overall road project, then the costs ofcomplementary investments must be conaidered as project costs.
Producer Surplus Approach
6. In the preceding discussion of the transport demand approach tothe analysis of rural road project benefits, it is clear that the basiceconomic changes taking place are only indirectly reflected in terms oftraffic levels., That is, the demand for transport is a derived demand.In a rural economy, the important changes, which it is hoped the roadproject will bring about, are at the agricultural level. The transportdemand approach does not, in Case II situations, offer the advantages, interms of measurement or present&tion,which it provides for Case I roads.In Case II situations, where existing traffic is small or negligible,estimates of transport demand are only credible if a detailed analysis of
ANNEX 1Page 4
the production system is carried out. Having gone through such anexercise, it seems more advantageous to proceed directly with a calcu-lation of producer surplus rather than to add the extra stage of derivinga transport demand function. This is why the producer surplus approachis recommended for Case II situations. The following discussion attemptsto clarify the producer surplus approach.
7. The producer surplus approach begins by focusing on a givensector, such as agriculture, and a given product (say, maize). 1/ Forthis crop, it is necessary to project conditions (costs, prices,andquantities) both with and without the road investment, year-by-yearover the project lifetime. These projections are difficult to make,involving consideration of the road's impact and many other factors.Agronomists and other specialists familiar with the production systemmust develop these estimates.
8. A simplified hypothetical case involving maize production in agiven year is considered below. Major assumptions underlying this par-ticular example are as follows:
(a) Transport cost savings due to the road project arefully passed along to the farmer, in terms of a higherex-farm price for outputs and a lower delivered pricefor inputs.
(b) Production costs per ton decline due to greater useof modern inputs, made accessible by the road project,and due to complementary investments. 2/
(c) Cultivated land area is fixed.
(d) Any additional quantity of maize produced as a resultof the project is not sufficient to cause a pricedecline on the market.
(e) All the maize produced is marketed over the improved road.
1/ Agriculture is used as an example of a productive sector because itis so predominant in many less-developed rural areas.
2/ To the extent that any change in a farmer's supply function isattributable to complementary investments, these must also be includedin the computation of project rate of return.
ANNEX 1Page 5
(f) Economic costs measured in efficiency prices areused throughout the analysis. 1/
9~. A number of more realistic considerations are dealt withlater, including home consumption, additional land cultivation, cropsubstitution, and regional deficit cases.
10. Figure 2 presents the maize production situation in the with-and without-project cases. Without the project, quantity Q1 of maizeis produced at farmgate price P1 in year N; this is the profit-maximizingposition, since marginal cost (MC ) equals marginal revenue (P ). 2/ Acompetitive situation is assumed lo that the supply curve is the duim of
p6 benefits due to higher MC1 MG2
farmgate prices
P 2 benefits due to
4 combined effect
P = Maize ex-farmprice, $/ton
2 Q = Maize output,tons/ha
input prices
2 4 Q0 Q2 6 Q3 8
FIGURE 2: MAIZE PRODUCTION IN YEAR N
1/ Economic costs are used in order to obtain an analysis which iscorrect from a national standpoint. However, it must be clearlypointed out that farmers' responses will reflect their perceivedcosts and values rather than national efficiency prices. Inpractice, therefore, market values may well require adjustmentsbefore the economic analysis is undertaken. Such adjustments arestandard, however, and are not discussed here. The reader is referredto Lyn Squire and Herman G. van der Tak, The Economic Analysis ofProjects, Johns Hopkins University Press, 1975.
2/ It is assumed, for simplicity, that marginal costs perceived by thefarmers equal those in terms of economic efficiency. This, of course,need not be so because of taxes, duties and externalities. Suchcomplications are not dealt with in this presentation (see footnote 1/).
ANNEX 1Page 6
the individual marginal cost curves. The producer surplus equals totalrevenue less farm production costs, such as fertilizer, seeds andlabor. 1/ Total variable costs at any production level can be definedas the area under the marginal cost curve out to the quantity produced.Thus, the difference between revenue and production costs in the without-project case is shown in Figure 2 as the area between NC1 and P,.
11. In the with-project case, production in the Nth year is ata higher output of Q3 at price P2. This increased maize production canbe explained as follows:
(a) Savings on transport of farm outputs in the amount of(P2 - Pj) per ton are passed on to the farmer in terms of a higherex-farm price, P2. 2/ Consequently, production increases from Q1 toQ2 along the marginRL cost curve, MC1 . 3/ Benefits, assuming originalinput costs, are represented in Figure : by the area to the left ofMC1, between P1 and P2.
(b) Savings on transport of farm inputs result in a decreasein production costs for any level of output, shown here by the shift ofMG, to MG2. At the new ex-farm price of P2, output expands from Q2 toQQ. This shift, reflecting cheaper transport of inputs, gives rise inFagure 2 to the benefit area between MC1 and MC2 .
(c) When the effects noted above are combined, maize productionincreases from Qh in the Nth year without the project, to Q3 in year N
1/ Any fixed production costs would show up in the investment stream.The illustration here is for a typical year after full developmentin the with-project case has been reached.
2/ It should be noted that price P2 can be sustained above averagetotal costs (thus giving rise to an economic rent in addition toany enjoyed for other reasons, such as location) if incrementaloutput from the road area is assumed to be small compared to theregional or national market, and if additional land cannot beeconomically cultivated.
3/ Increased production should not be taken for granted. It may notbe possible for farmers to increase output in response to the higherpriLce because of inadequate access to other inputs (credit, technologr),or because of institutional constraints.
ANNEX 1Page 7
with the project. 1/ The higher ex-farm price and lower cost of farminputs causing this change are directly related to the lower transportcosts which cause an increase in traffic from Qj to Q2 in Figure 1.The net change in producer surplus, or farm-level benefits, associatedwith this economic change is shown as the total shaded area in Figure 2.
(d) In addition, changes in the production system can occurindependently of the road investment. Such a change could be representedby a shift of the production cost curve, similar to the shift from MC1to MC2 in Figure 2. This shift would increase production and farm-levelincome at all output levels, and would be identical to the exogenousshift of transport demand noted in paragraph 5 (d). If this shift were dueto complementary investments undertaken in conjunction with the roadproject, the relevant costs would have to be included in any integratedanalysis of economic benefits in the area of influence. If, on the otherhand, these investments would take place even in the absence of the roadproject, then the resulting agricultural production would be consideredpart of the without-project case in a given year. To simplify furtherdiscussions in this Annex, it is assumed that any shifts due to comple-mentary investments have already been taken into account by curve MC2in Figure 2.
12. The incremental producer surplus can be calculated frommarginal cost data in Figure 2 as follows:
With Project:
Revenue = P2 x Q3 - 5.0 x 6.48 = 32.4Variable Cost Area under MC2 curve = _13.0Producer Surplus -4 19.h
Without Project:
Revenue = P1 x q1 = 3.56 x 4.5 = 16.0Variable Cost = Atea under MC, curve = 11.0Producer Surplus = 5.0
Incremental Producer Surplus -(with p.s.) - (without p.s.) -
19.4 - 5.0 = 14.4
1/ It should be noted that Pigure 2 portrays a static situation in agiven year so that all curves are of the short-run type. A dynamicview of the with-project situation would show output price and pro-duction costs responding to the road investment over time. Farmgateprice may not rise immediately due to the time lag necessary fortransport cost savings to be translated into lower transport charges;production costs may decline slowly as the farmer adjusts to a newoptimal use of cheaper inputs, improved techniques and bettermarket access.
ANNEX 1Page r
13. In practice, the problem of defining the marginal cost curvecan be avoided by the use of average variable cost for the output levelinvolved, Referring to Figure 3, it is apparent that average variablecost at any output level multiplied by the quantity produced yieldstotal variable cost. This is operationally simpler than deriving thearea under the entire marginal cost curve, since only one point on eachvariable cost curve is needed.
Maize price,$/ton
6 mc1 MC2
P2X
4
P 1 AVC2~~~~~~VC
2
O a jI I i i I I J Maize output,2 4 1 6 Q3 8 tons/ha
FIGURE 3: MAIZE PRODUCTION IN YEAR N: USE OF AVERAGE VARIABLE COST
14. The computation of incremental producer surplus using averagevariable cost curves shown in Figure 3 is as follows:
With Project:
Revenue = P2 X Q3 = 5.0 x 6.48 = 32.4Variable Cost = AVC2 x Q3 = 2.01 x 6.48 = 13.0Producer Surplus = 19.4
Without Project:
Revenue = P1 x Q1 = 3.56 x 4.5 - 16.0Variable Cost = AVC1 x Q = 2.44 x 4.5 = 11.0Producer Surplus = 5.0
Incremental Producer Surplus = 14.4
ANNEX 1Page 9
This is a much simpler calculation, and yields the same result obtainedearlier using marginal costs. Therefore, in practice, it is suggestedthat average variable costs be estimated for the with- and without-project cases at the approximate output levels involved.
Adjustments
Home Consumption
15. Home consumption represents an important special case,sinceit alters the one-to-one relationship between farm production and agri-cultural transport over the improved road ,which has been the case inthe analysis up to this point. l1 Figure 4 illustrates the home con-sumption of maize. Initially, substitution along demand curve D willoccur as the maize price rises; less maize will be consumed at home.However, income effects of two types may arise as well. First, if maize is animportant item in the household diet, local demand for maize will decline as therelative price of maize rises (if maize is a normal good). Second, if maize
Maize price,$/ton MCi MC2
P2D D D'P2
P1
Maize output,
QH1 QT1 QT2 tons/ha
FIGURE 4: HOME CONSUMPTION CASE
1/ In this sense, the home consumption adjustment can also be appliedto the case of alternative markets, where some produce is marketed inareas not served via the improved road. The theory behind the al-ternative market adjustment is identical to that described here, andso is not repeated.
ANNEX 1Page
is an important item in farm production, a price rise will increasereal income, and opposite income effects will occur. In general, thislatter effect (increased price creating higher income, leading toincreased demand) will dominate. Thus, for a normal good, demand willappear to shift to D', and benefits will be underestimated. For aninferior good, demand will appear as D"?, and benefits will be over-estimated.
16. Obviously if the income effect is large, the apparent demandcurve will not coincide with the compensated (or pure-substitution-effect)demand curve D. In this case, adjustments to the benefit analysis mustbe made. Hicks considered this case some time ago, and the resultinganalysis is complex. I/ For the present purpose, it is proposed thata single demand curve be estimated and used in the computation ofconsumer surplus loss outlined for the home consumption case. Itshould be borne in mind, though, that large income effects may createcertain distortions in the measurement of benefits. In Figure 4, thecross-hatched area is an approximate measure of benefits, assuming thatthe income effect is not too large.
Additional Land Cultivation
17. One assumption underlying the previous analysis in that landis fixed. However, the road project may well make the cultivation ofidle land economical, so that land area increases. This situation isillustrated in Figure 5, where new land is placed under cultivation assoon as a producer surplus begins to arise. That is, initially no newland is cultivated since marginal cost, MC1N, exceeds ex-farm price,Pl,for all output levels. Once effective price is increased from Pl to P2and production costs are decreased from MCN to MC2N, due to the roadproject, it becomes economical to cultivate previously unused land; incre-mental production on the newly-cultivated land is Q2N tons. The marginalcost curves on new land without the project may be steeper and higherthan costs on old land, since new land is normally located furtherfrom the road. The limits of cultivation, will, in fact, be pushed further
1/ For a good discussion, following Hicks, of the case where incomeeffects are large, see Ian G. Heggie, Transport Engineering Economics,London: McGraw-Hill Book Company, 1972, pp.14-19.
ANNEX 1Page 11
away from the feeder road so long as lower road transport costs andproduction costs offset the higher on-farm ("head-loading") transportcosts. 1/ In practice, the higher marginal production cost on new(more remote) land can be approximated by raising the normal averagevariable cost by an appropriate percentage.
Ex-farm price,$/ton MclN MC
P2
Output from newly-
Q2N cultivated land, tons
FIGURE 5: ADDITIONAL LAND CULTIVATION
Crop Sabstitution
18. Besides new land cultivation, the use of existing land mayshift by substituting one crop for another. The effect of the improvedfeeder road is to make cultivation of bulky (transport-intensive) com-modities economical, both further from the road and further along it.This is natural, since transport costs will represent a large portion ofdelivered price for bulky, low-value commodities. The road may alsostimulate production of high-value, easily bruised crops, such as fruits
1/ This is the basis of the Ellet-Walters Model, presented in A. A. Walters,The Economics of Road User Charges, World Bank Staff Occasional Paper,No* 5,196T(Chap. 5). Th ters Model deals with the geographicallimits of crop cultivation, whereas the present approach treats an averagefarm at an average distance from market. See Annex 4 for a discussionof the road's area of influence.
ANNEX 1Page 1Z
and vegetables. These products may face a very low effective farmgateprice without the project, because of high transport costs and especially,high spoilage. 1/ An improved road, which allows truck access in placeof head-loading, may introduce higher income-producing crop opportunitiesto farmers. Greater qualitative and economic changes in transportationwill cause greater shifts in cropping patterns.
Fegional Deficit
19. In the case of subsistence crops, the normal assumption is thatthe farmer produces some exportable surplus both with and without theproject. When this is so, there are no transport cost savings on incre-mental home consumption.
Maize price,$/ton MC1 MC2
Price of ImportsP - Delivered
to Farm Gate
QM2
Maize output,Q1 QP2 QC tons/ha
QM1
FIGURE 6: REGIONAL DEFICIT CASE
1/ The benefits which may accrue to farmers because of improved qualityof transport service, are in addition to the benefits due to higherfarmgate price. Where farmgate prices are regulated by government,improved service and accessibility may be the major benefits of theproject flowing to farmers.
ANNEX 1Page 13
20 However, in some cases, food grains may be brought in fromother areas without the project; these imports may simply decrease ("importsubstitution") in magnitude with the project, due to lower production costs.Benefits in this case would be the foregone delivered grain price minusincremental production costs. For a case with constant imported deliveredgrain price, the situation is as shown in Figure 6. Here, quantity QC isconsumed by the farmer, of which he produces QP1 without the project andQP2 with the project, the difference being supplied by imports from otherregions. lb this case, the value of foregone imports is P x (QM, - QN),and incremental production costs equal the difference in areas under tfietwo marginal cost curves. The net benefit is shown as the shaded area.
Distribution of Benefits
21. One of the assumptions made earlier is that of perfect competitionin the transport sector, which leads to the simplified case in which allbenefits accrue to agricultural producers, as long as market prices remainconstant. It must be remembered that the transport sector is normally theinitial recipient of certain benefits (i.e., lower vehicle operating costs)and will seek to retain at least a portion of these benefits in the formof increased net profits. Therefore, transport rate reductions may notautomatically follow cost reductions, and benefits will not necessarilybe fully passed on to the farmer. This is particularly so because of thevarious transport regulations often found in practice, e.g., barriers toentry. There is clearly a complementary relationship between agricultureand transport since the two sectors are part of the same vertical economicsystem.
22. This complementary situation, and a hypothetical distributionof project benefits between the two sectors, is shown in Figure 7. Here,the price of transport 1/ added to the price of production (farmgate price)equals a constant market price. In the without-project case, the transportsector surplus is zero since it is assumed, for simplicity, that transportcosts plus normal profit make up the entire difference between farmgateprice and market price. At the same time, the farm sector enjoys a pro-ducer surplus of 5.0 (see calculations, page 15). In the with-project case,while a total producer surplus of 19.4 is obtained as in paragraphs 12and 14 earlier, this no longer accrues solely to farmers. It is nowassumed that the transport sector retains 56% of the transport cost
/ Transport (whether by truck, oxcart or head loading, etc) can bedefined in a brond sense to include all distribution and marketingoperations between the farmgate and the final market.
ANNEX 1Page 1
savings, leaving the farmers only 44%; consequently, ex-farm priceincreases only to 4.2 rather than to 5.0 as it did in the earlierexample. Incremental fanrer and transporter surpluses are shown onpage 15.
Variable Without Proiect With Project($/ton) ($/ton)
C = Maize production cost 2.44 2.01P = Maize ex-farm price 3.56 4.20M = Maize market price 7.00 7.00T = Maize transport cost 3.44 2.00
Maize price, Maize price,$/ton $/ton
MARKET PRICE MARKET PRICEml M .M 2
6 _| 6 'T2 TRANS.
=TRANS. COSTS
COSTS= COSTS ///r/T~ ~~RANS. SURPLU/
4 4
2 2ProD. 2 bPROD.E C:2PRODUCTION AND TRANPORTOFMAIZEINYEAR.COSTSCOT
11 I ~~output Otu0 I ~~~~~tons/ha 0tosh
2 4 l2 4 6 Q2
a. Without-Project Case b. With-Project Case
FIGURE 7: PRODUCTION AND TRANSPORT OF MAIZE IN YEAR N
ANNEX 1Page 15
With Project:
Farmer Surplus = (P 2 - C2) x Q2= (4.2 - 2.01) x 6.48
=14.2Transporter Surplus = ((M2 - P2) - T2) x Q2
= (2.8 - 2.0) x 6.48 = 5.2
Producer Surplus 1 19.4
Without Project:
Farmer Surplus = (P2 - 01) x Q1 = (3.56 - 2.44) x 4.5
5.0Transporter Surplus = 0.0
Producer Surplus = 5.0
Incremental Producer Surplus = 14.4
23. The point of this exercise is that from an economic perspective,two types of savings must be considered: (1) transport cost savings, and(2) production cost savings, due to the rural road project. 1/ But,inorder to assess the distribution of transport cost savings, it is necessaryto estimate the price movements in this economic system. Hence, thepractical need to analyze the degree of competition and the pricingmechanism operating in the trucking industry and throughout the distri-bution network. Whatever the farmer's supply curve elasticity due tomore efficient production techniques, his output response will clearlydepend upon the price offered him at the farmgate by the trucker ormiddleman.
24. Finally, it is necessary to consider the distribution of benefitsbetween producers and consumers. If market demand is not perfectly elasticand if the increased supply of a crop from the area of influence is signi-ficant, then the market price will fall. This has the effect of transferringbenefits frcm producers supplying the market to consumers. Overall benefitswill change, depending upon the elasticities of supply and demand for thecommodities involved. In practice, it may be very difficult to tracethe impact of such market price changes upon each class of beneficiaries.If inelasticity of market demand or substantial production increases arepresent, the resulting consumer surplus must nonetheless be identifiedand the total surplus adjusted accordingly.
1/ Again, complementary investments required to bring about productioncost savings must be included in the analysis, and if relevant, thebenefits to users of the products transported.
ANNEX 1Page 16
Conclusicns
25. This Annex attempts to set forth the producer surplus analysis.Such an analysis seeks to quantify the surpluses arising in the productionand transport sectors as a result of investment in rural roads and cample-mentary inputs. This quantification of benefits is similar tQ methods usedto assess agricultural projects, differing mainly in the emphasis ondistribution of benefits and in the related level of increased ex-farmprices in cases where transport services are competitive. In accordancewith agricultural project analysis practice, the market price for farmproduce is not usually assumed to be affected by the incremental outputfrom the area of influence. This, of course, is an empirical issue; aswith any public investment, estimates of the incidence of projectbenefits must be based upon the results of field investigations.
ANNEX 2Page 1
1/CASE STUDY
introduction
1. The purpose of this case study is to illustrate the practicalsteps necessary for appraising a rural road investment where there islimited normal traffic and where substantial increases in output,particularly agricultural production,are expected. Following a briefdescription of the project components and data requirements, a step-by-step computerized analysis is presented.
2. A hypothetical 35-km road has been selected for analysis.Improvement of the road from earth to an all-weather gravel standard isproposed. The road serves as the principal link between an administra-tive and marketing center and the surrounding district. The topographyof the area ranges from flat to rolling hills.
3. The principal economic activity in the region is agriculture,mostly at the subsistence level. Maize and wheat are assumed to bethe main crops exported from the region. Limited amounts of oilseed,pepper and coffee are also exported. Crops grown mainly or exclusivelyfor home consumption include potatoes and certain fruits and spices.
L. It is assumed that over half the farmers in the district aretenants, cultivating an average area of .5 ha. Rent payments to landlordsare both in kind and cash, plus some labor contribution.
W. Agricultural commodities are transported from the area by truck. Pas-senger transportation is by land rover. Beyond the end of the road, transport-is largely by pack animal, though human porters are also used. Trafficon the road averages 4 trucks and 4 land rovers per day. The area ofinfluence of the road extends approximately 10 km on either side of it,encompassing a total surface area of 70,000 ha. A rural population ofapproximately 63,000 inhabits the area of influence. The growth rate ofthe population is estimated at 2.5% per annum.
Hypothetical Project Comonents
A. Road Construction and Maintenance
6. The main cost element in this proposed development effort is thecost of upgrading the existing 35-km earth surface road to gravel stan-dard ($2.52 million). 2/ This improvement is assumed to have a 10-year
1/ Prepared by T. David Hodgkinson, Transportation Department, IBRD.
2/ The monetary sign is used for reference only and does not refer toany particular currency.
ANTEX 2Page 2
economic life before reconstruction would be required. For simplicityit is assumed there would be no residual or salvage value to the roadat the end of the 10-year period. A comprehensive program of routineand periodic road maintenance will also be necessary. With suchmaLntenance, vehicle operating costs are estimated to remain at approxi-irately the same level over the life of the project. Annual roadconstruction and maintenance expenditures are provided in a subsequentsection.
B. Complementary Aricultural Investments
7. Traditional methods of cultivation predominate in the projectarea. Basic techniques include haphazard rotation of crops and tumble-down fallow for livestock. Under these conditions, it is unlikely thatfeeder road construction alone will be sufficient to trigger significantincreases in crop yields and agricultural output.
8. In order to maximize the impact of feeder road investments,the project incorporates a Minimum Package Program (HPP) whereby selectedinputs are made available to subsistence farmers; these inputs includefertilizer, extension services, and improved seeds and harrow. Expendi-tures associated with the HPP represent an incremental cost of productionto be deducted from project benefits.
9. During the project life cycle, MPP inputs are applied toprogressively larger crop areas, which are termed "improved crop areas."Benefits from improved crops are reflected as incremental output due toincreased yields.
lOo Data concerning crop areas, yields, and production costs in thearea under the influence of the road are considered in subsequent sections.
Analy,tical Approach
jiI The economic analysis employed in this case is based on theproducer surplus (value added) approach. This approach attempts toquantify all the benefits arising from the increase in the productionand transport of agricultural output. Savings in vehicle operating costsfor the few passenger-carrying jeeps using the road (presently four perday), are computed on the basis of road user savings and are consideredadditional benefits.
12. Employment of the producer surplus approach means that a sigpifi-cant statistical and other data collection effort is needed to obtain: (a)an accurate description of existing production conditions in the area; (b)an assessment of the minimum incremental amount of expenditures needed togenerate increased agricultural output; and (c) estimates of changes inyields, farigate and market prices, etc. This statistical effort will requirethe full cooperation of agricultural experts familiar with the areaand its people.
ANNEX 2Page 3
13. The value added approach focuses on the difference in the netincome of the agricultural producers and transporters with and withoutthe road investment and the complementary incremental investments andexpenditures in agriculture. Since it is an "economic" approach ascontrasted to a financial analysis, all the project's expenditures andrevenues should reflect economic costs (i.e., shadow or accounting priceswhich infer and allow for transfer payments, subsidies and other"distortional in prevailing market prices). 1/
14. By definition, the value added approach does not focus on thefinancial incentives generated by proposed rural road investments. Theseincentives are, however, critical to the viability of projects and meritconsiderable attention in the appraisal process. In this respect, farmbudgets are particularly useful and should be used to complement theanalysis described below. 2/
A.. Information Requirements
15. While specific data requirements vary from case to case, thisapproach generally requires the information 3/ listed below. The columnnumbers listed in parentheses refer to Tables 1 to 4 of the case studyand show where the data is used in the analysis.
(a) Area of Influence of the Road. The geographicalarea which will be aMfected by the constructionor improvement of a road. Implementation of theproject is likely to alter land use patterns,production costs and revenues, marketing, etc.,within this area.
(b) Total Cultivated Area. The quantity of landactually under cultivation. The total culti-vated area by crop type is subject to changeover time and mqust therefore be estimated foreach year of the project. (Column 2)
1/ For a comprehensive discuesion of shadow prices, see Lyn Squire andHerman G. van der Tak, The Economic Analysis of Projects, Johns HopkinsUniversity Press, 1975; see also J. Price Gittinger, Analysisof Agricultural Projects, Johns Hopkins University Press, 1975,pp-19-46.
2/ See, for example, Maxwell L. Brown, Preparing Farm Budgets forAgricultural Project Analysis, Economic Development Institute,JJBRD, lY75L.
3/ The data requirements listed are applicable in cases where agriculture(specifically, crop production) is the principal econonic activityin the area.
ANNEX 2Page 4
(c) Crop Area Breakdown. A crop-by-crop division ofthe cultivated area. The crop area breakdownmust be forecast for the without- and with-projectcases in each year of the project. All crop landbrought into production over and above that whichwas cultivated in year 0 should be separately identi-fied to facilitate the quantification of productioncosts incurred on newly cultivated land.
(d) Improved Crop Areas. The crop areas receivingcomplementary agricultural investments (e.g.,fertilizer, extension, improved seeds). Theseareas must be determined for each crop and ineach year of the project.(Column 5)
(e) Population Statistics. The total populationresiding within the area of influence (bothwithout-and with-project) over time.(Column 12)
(f) Per Capita Consumption. The per capita consump-tion of persons residing in the area. With dataon local population and per capita consumptionfor each crop, it is possible to determine thequantity of production consumed locally and thequantity which is exported from the project region(i.e., the exportable surplus). (Column 13)
(g) Ex-Farm Prices. The unit farmgate prices foreach crop in both the without- and with-projectcases. To the extent that project-inducedtransport cost savings are passed on to thefarmers, ex-farm prices can be expected toincrease. 1/ (Columns 15 and 18)
(h) Agricultural Production Costs. These costs wouldtypically include the following components:
1/ A thorough analysis of unit transport costs and prices asspecified in item (i) must necessarily precede estimates ofwith-project ex-farm prices.
ANNEX 2Pagse
(1) Production Costs on Old Land and NewLand: expenditures for labor, seed,fertilizer and so on. On new land, itis assumed that the same cost items areinvolved, but that unit expendituresare somewhat higher, reflecting thegenerally higher marginal cost curveencountered on new land (such land maybe of poorer quality and/or further re-moved from productive services than oldland so that production coats are greater).(Columns 21 and 23)
(2) Incremental Agricultural Development Costs:the incremental costs of improving speci-fied crop areas, irrespective of whetherthey are on old or new land. (All non-incremental or "basic" production costashould be included in component (1) above).(Column 25)
(3) Clearing Coats on New Land: a one-timeexpenditure which occurs on new land duringthe year in which that land is first broughtinto production. (Column 27)
(i) Agricultural Transport Costs and Prices. The unitoperating costs and prices charge y transportersin the without- and with-project cases. Combiningthese figures with data on the exportable surplusand agricultural inputs in each year of the pro-ject life, enables one to determine total costs andrevenues p.a. of transporters. (Columns 30 and 32)
(j) Non-Agricultural Traffic. The volume of non-agricultural traffic by vehicle type, moving overthe road in a given year. Traffic data mustinclude forecasts of both normal and generatedtraffic growth. (Column 34)
(k) Non-Agricultural Vehicle Operating Costs. Thewithout- and with-project operating coats of eachnon-agricultural vehicle type using the road.This information, together with the traffic datagathered in item (J),is necessary to quantify non-agricultural vehicle cost savings. (Column 35)
ANNEX 2Page 6
(1) Road Construction and Maintenance Costs. These are thecosts of constructing (or improving) the road in questionand the costs of routine and periodic maintenance; main-tenance costs must be estimated for both the without- andwith-project cases. (Coluims 43 and 44)
(m) Other Project Costs and Benefits. Most projects have othercosts or beneflts WhiCh are not necessarily related to anyof the above. These must be estimated as accurately aspossible in connection with project rate of returncomputations. 1/
B Analyi
16. Ih order to facilitate appraisal of the road, a computer-assisted"feeder road analysis package" (FR75) is utilized. In its current stateof development, the package consists of a set of models, each of whichperforms an operation or operations necessary for computing the internalrate of return. The data inputs needed to run FR75 correspond roughly tothe information requirements outlined above. It should be noted that theFR75 program is still in the development stage, with various improvementsunderway at the present time.
17. The flow of calculations in the FR75 model is accomplished througha series of sub-models shown in Figure 1. Sub-models 1 through 9 focus onthe agricultural (or primary commodity) sector. These sub-models yield thetotal value and costs of production and also measure the net revenue whichaccrues to agricultural transporters. Sub-models 10 and 11 serve to identifyproject-induced cost savings on non-agricultural vehicle traffic. Sub-model12 is used to store data relating to road construction and maintenance costsand Sub-model 13 provides space for any other costs or benefits associatedwith the project.
180 As shown in Figure 2, the cost and benefit streams emerging fromSub-models 1 through 13, i.e., agricultural costs, agricultural benefits,non-agricultural vehicle savings, construction costs, etc., are collectedin Sub-model 14., which then computes net benefit and cost streams. Thesestreams are, in turn, fed directly inVo CBPACK, a Cost-Benefit package usedby the Bank. Chaining into CBPACK is done by Sub-model 15. In its presentform,the Cost-Bseefit package includes computational procedures to obtainthe following: _2
1/ I, for example, previously unemployed labor is utilized in the marketingand handling of vegetables, the use of such labor involves both costsand benefits which should be considered.
2/ For detaila, consult the CBPACK User's Manual, IBRD, December 1974.
ANNEX 2Page 7
Fig. 1: FLOW OF CALCULATIONS FOR FEEDER ROAD ANALYSIS MODEL
Sub-model 0BASE DATA
Sub-model 1 Sub-model 12TOTAL CULTIVATED Sub-model 10 ROAD CONSTRUCTION &
AREA TRAFFIC MAINTENANCE COSTS
Sub-model 2 Sub-model 11 Sub-model 13CROP AREA NON-AGRICULTURAL OTHER PROJECT COSTS
BREAKDOWN VEHICLE COST SAVINGS & BENEFITS
Sub-model 3IMPROVED CROP AREA
Sub-model 4 Sub-model 14CROP YIELDS & AGGREGATION OF PRO-PRODUCTION JECT COSTS & BENEFITS
Sub-model 5 Sub-model 15POPULATION COST-BENEFITSCHEDULE ANALYSIS
Sub-model 6LOCAL CONSUMPTION &EXPORTABLE SURPLUS
Sub-model 7EX-FARM PRICES
Sub-model 8AGRICULTURAL PRO-
DUCTION COSTS
I
| Sub-model 9 lAGRIC. TRANSPORTER'S
COT ! RVNE
ANNEX 2,. Page 8
Fig. 2: DERIVATION OF COST AND BENEFIT STREAMSFOR FEEDER ROAD ANALYSIS MODEL
Sub-models 1 thru 9 Sub-models 10 and 11 Sub-model 12 Sub-model 13give Agricultural give Non-Agricul- gives Road Con- gives Other Pro-Costs and tural Vehicle struction and ject Costs andBenefits: Operating Cost Maintenance Costs: Benef its:
Savings:
Bl B3 = C5 =
TOTAL VALUE OF VEHICLE CO ROAD CONSTRUCTION OTHER PROJECTPRODUCTION SA<VEING CST OT COSTS /
4 ~~~c1 B C4 B5
TOTAL COST O COST SAVINGS ON TRANSPORTED AGRfCUL-) RA ANEAC TE RJC
PRODUCTION ~~~~TURAL INPUTS COSTS BENEFITS
82
AGRICULTURALTRANSPORTER'S
REVENUE
|AGRICULTURALTRANSPORTER'S
COST
Sub-model.14* (*Calculates with-project minusSub-model 14* without-project costs and
AGGREGATION OF PROJECT benfit )COSTS AND BENEFITS nefs
JSub-model 15
COST-BENEFIT ANALYSIS
ANNEX 2Page 9
(i) Economic Rate of FRturn (ERR);(ii) Net Present Value (NPV);(iii) First Year Benefit (FYB);(iv) Benefit Cost Ratio (BCR);(v) Cost Parametric Analysis (CPA) of a rate of return
cmputation;(vi) Risk Analysis on any of (i) through (iv) above.
19. The flow of calculations in Figures 1 and 2 is illustrated bymeans of the example presented below. By proceeding on a model-by-modelbasis and using sample data for a single crop we shall consider:
(a) the necessary input data; and(b) the various intermediate calculations required to quantify
agricultural and transport costs and benefits.
Tables 1 to 4 provide additional detail concerning the calculation of aneconomic rate of return for the project.
Sub-model 1 (Total Cultivated Area)
20. Once the area of influence is specified (as base data), patternsof agricultural production within it can be identified. Sub-model 1 com-putes Total Cultivated Area in hectares both without (TCAW0) and with (TCAW)the project. The cultivated area may be calculated as a percentage of thetotal area in the region on a yearly basis.
Sub-model 1
Total Cultivated Area
INPUT OUTPUT(percent) (ha)
Without With Without WithYear Project Project Project Project
1 18 18 12,600 12,6002 18 18 12,600 12,6003 18 18 12,600 12,6004 19 19 13,300 13,3005 19 20 13,300 14,0006 19 21 13,300 14,7007 20 22 14,000 15,4oo8 20 23 14,000 16,1009 20 24 14,000 16,80010 21 25 14,700 17,50011 21 26 124,700 18,20012 21 27 14,700 18,90013 22 28 15,400 19,600
ANNEX 2Page 10
Sub-model 2 (Cro-p Area Breakdown)
21. Since prices, yields and production of each crop differ, aknowledge of the various crop areas is necessary to determine agriculturaivalue added. In essence, the Crop Area Breakdown figures computed in Sub-model 2 anount to a finer division of the Total Cultivated Area outputderived in Sub-model 1.
22 . In the example below, without-project crop areas are shown toincrease much more slowly than in the with-project case. In estimatingcrop areas, transport cost savings, for example, might make it possibleto grow crops which were previously considered uneconomic. Similarly,road improvements might lead to time savings and eliminate perishabilityproblems previously encountered. Therefore, with a road project, itmight be expected that a larger area would be brought under cultivation.
23. Sub-model 2 also distinguishes internally between Original CroppedArea (OCA), and Newly Cropped Area (NCA). This distinction becomes neces-sary when production costs are specified (in Sub-model 8), because such costsmay be higher on newly cropped land (i.e., the economic rent may be lower).
Sub-todel 2 - Input1/
Crop Area Breakdown(percent)-
Year Maize Wheat Coffee Oilseed PepperW/o witlh w70--iTh w/oo with w7o with w/o wit
1 56 56 10 10 5 5 2 2 1 12 56 56 10 10 5 5 2 2 1 13 56 56 10 11 5 5 2 2 1 14 56 56 10 11 5 5 2 2 1 15 56 57 10 11 5 5 2 3 1 26 56 57 10 12 5 5 2 3 1 27 56 58 10 12 5 5 2 3 1 38 56 58 10 12 5 5 2 3 1 3
9-13 56 58 10 12 5 4 2 3 1 h
I/ Expressed as percent of Total Cultivated Area. Percent figures do notadd to 100% due to existence of fallow land and additional minor crops.
24i. Ineremental Newly Cropped Area (INCA) is broken out separatelybecause it is on this land that clearing costs will be charged (see Sub-model8). This is new land brought under cultivation on a yearly basis.
ANNEX 2Page 11
25. The Crop Area Breakdown and Newly Cropped Area output for onecrop, maize, is shown below.
Sub-model 2 - OutputD - 7 ~~1/
Crop Area Breakdown - Maize(ha)
With WithWithout idith Proect Total Project Increm.Project Projec-t Newly Cro ped Newly Cropped
Year Area Area AreArea 2/
1 7056 70562 7056 70563 7056 70564 71lM 74W8 392 3925 74148 7 80 925 5336 744 8 8379 1323 3987 7840 8932 1870 5538 7840 9338 2282 4069 7810 571414 2688 40610 8232 10150 3094 40611 8232 10556 3500 14612 2232 10962 3906 40613 ^6264 11368 421 06
1/ Computer prepares sirrilar data for each crop.
2/ Computer prepares a similar tabulation for the without-project case.
Sub-model 3 (Improved Crop Area)
26. Sub-model 3 distinguishes between crop areas which have been"improved"f and those which are left unimproved. As mentioned earlier,improved land is land to which the minimum package of inputs (e.g.,fertilizer, extension, improved seed varieties) is applied. Yields onimproved land will generally be higher (see Sub-model 4), but so willcosts (see Sub-model 8). The Improved Crop Area (ICA) inputs for maizeare shown below. Similar ICA data is needed for each crop under culti-vation, in both the without- and with-project cases.
27. If percentage figures are used for each ICA input figure in agiven year, then this figure can be multiplied by the corresponding CropArea figure in Sub-model 2, to calculate the Improved Crop Ares in squareunits, which is Sub-model 3 output.
ANNEX 2Page 12
Sub-model, 3
Improved Crop Area - Maize
INPUT -/ OUTPUT(percent) (ha)
Without With Without WithYear Project Project Project Project
2 - -- 2-3 - 6 - 4234 - 8 - 5965 - 16 - 12776 - 30 - 25147 - h0 - 35738 - 49 - 45769 - 60 - 5846
10 - 65 - 659811 - 70 - 738912 - 73 - 800213 - 76 - 8640
1/ Expressed as percent of Maize Crop Area.
Sub-model 4 (Crop Yields and Production)
28. The principal function of Sub-model 4 is to quantify agri-cultural production without and with the project. Since both improvedand unimproved crop areas have already been estimated, only yieldsremain to be specified in order to determine total agricultural output.The two variables which are used in this process are Yield on UnimprovedLand (YUN) and Yield on Improved Land (YIM).
29. Once the appropriate yield data have been entered, Sub-model4 calculates three measures of production:
(a) Agricultural Production on Improved Land (APIM).
(b) Agricultural Production on Unimproved Land (APUN).
(c) Total Agricultural Production (TAP).
ANNEX 2Page 13
30. Sub-model 4 output for maiz" only is shown; a similar outputis computed for each crop.
Sub-model 4 - Input
Maize Yields(tons/ha)
Yield on Yield onUnimproved Improved
Year Land (YUN) Land (YIM)
1-2 1 1
3-13 1 3.4
Sub-model 4 - Output
Agricultural Production, Maize(tons)
W I T H 0 U T W I T H
Year APIM APUN TAP APIM APUN TAP
1 - 7056 7056 - 7056 70562 - 7056 7056 - 7056 70563 - 7056 7056 1439 6633 80724 - 7448 7448 2026 6852 88725 - 7448 7448 4341 6703 1l10446 _ 7448 7448 8547 5865 144127 - 784o 7840 12148 5359 175078 - 7840 7840 15557 4762 203199 - 7840 7840 19878 3898 23775
10 - 8232 8232 22432 3553 2598411 - 8232 8232 25123 3167 2829012 - 8232 8232 27208 2960 3016713 - 8624 8624 29375 2728 32103
31. Total agricultural production must be separated into thatwhich is consumed locally and that which is exported from the regionvia the improved road. This distinction is necessary because transportcost savings do not apply to locally consumed output,and project benefits
ANNEX 2Page Th
must be adjusted accordingly. 1/ The first step in determining localconsumption is to estimate the population residing within the area ofinf'luence of the road. this is done in Sub-model 5.
Sub-model 5 (Population Schedule)
32. This model determines the yearly farm population of the area.For this case, it is assumed that approximately 63,000 inhabitantslive within t,he area of influence of the road and that population isgrowing at the rate of approximately 2.5% per annum.
Sub-model 5 - Output
Total Population in Area under Road Influence
Year Population Year Population
1 63,000 8 74'8872 64,575 9 76.7593 66,189 10 78,6784 67,844 11 80,6455 69,540 12 82,6616 71,279 13 841 ,7287 73,061
33. Once total farm population is calculated, per capita consumptionis specified in order to calculate total local (on-farm) consumption. Thisoperation is performed in Sub-model 6.
2/Sub-model 6 (Local Consumption and Exportable Surplus)
3L'. Local Consumption Per Capita (LCPC) is estimated in thismodel for each crop. Local consumption in the without-project case isestimated on the basis of existing consumption patterns. Consumptionin the with-project case is based on the elasticity of demand forthe commodities concerned.
1/ After separating out local consumption, the program computes trans-port cost savings only on that portion of output exported from thearea of influence. To the extent that some agricultural outputcontinues to be evacuated via unimproved roads or to alternatemarkets, additional adjustments may be required; see Annex 1.
2/ Local consumption refers throughout to on-farm consumption.
ANNEX 2Page 15
Sub-aodel 6 - Input
Local Consumption per Capita, per Year(kg)
1/Crop Without Project With Project
Maize 90.0 94.5
Wheat 15.0 16.0Coffee 5.C 5.0Oilseed 5.0 5.0Pepper 0 0.5
1/ Augmented with-project consumption assumed to begin inyear 4, following road improvements and initial agri-cultural investments.
35. Given these inputs, Total Local Consumption (TLC) is calculatedfor each year and for each crop. Total Local Consumption is then subtractedfrom Total Agricultural Production (TAP) to obtain Exportable Surplus (EXSU).The consumption of certain agricultural products may increase in developmentareas when local production or income is increased. Assumptions regardingthe income elasticity of demand for such products should be based onexperience in the country involved. Local Consumption and Exportable Surplusfor maize are shown below.
Sub-model 6 - Output
Total Production, Local Consumption and Exportable SurplusMaize(tons)
Without Project With ProjectYear TAP 1 TLC EXSU TAP i/ TLC EXSU
1 7056 5670 1386 7056 5670 13862 7056 5812 1244 7056 5812 12443 7056 5957 1099 8072 5957 21154 7448 6106 1342 8878 6411 24675 7448 6259 1189 11044 6572 44736 7448 6415 1033 14412 6736 76767 7840 6575 1265 17507 6904 106028 7840 6740 1100 20319 7077 132439 7840 6908 932 23775 7253 1652210 8232 7081 1151 25984 7435 1854911 8232 7258 974 28290 7621 2069912 8232 7440 792 30167 7812 2235613 8624 7626 998 32103 8007 24096
1/ TAP calculated in Sub-model 4.
ANNEX 2Page 16
,Sub-nodel 7 (Ex-Farm Pri3es)
36. It may be desirable to place different values on outputwhich is consumed locally and output which is exported. 1/ Accordingly,Sub-model 7 provides for ltwo ex-farm price variables:
(a) Farmgate Prices of Crops Consumed Locally (FGPL).(b) Farmgate Prices of Exported Production (FGPX).
Sub-modal 7 - Input
Farmgate Prices($/-ton,)--
Local Consumption (FGFL) Exported Production (FGPX)a/ a/
Crop Without With Without With
Maize 148 150 148 150Coffee 1468 1470 1468 1470Pulses 183 185 183 185Oilseed 268, 27C 268 270PAepper l418 420 418 L20
a/ With-project farmgate prices assumed to take effect in year 4,following completion of road construction.
37. The farmgate prices of exports (FGPX) and local consumption(FGPL) are assumed to increase by $2.00/ton on each crop in this case,reflecting transport cost savings which are passed on to the farmer(derived in Sub-model 9). Only to the extent that such savings arepassed along is it justifiable to increase farmgate prices. In thisrespect, a thorough understanding of transport cost and price mechanismsis necessary to accurately determine the percentage of transport costsavings reaching the farmer and the percentage retained by the transportsector. Once farmgate prices have been specified, Sub-model 7 computesfour measures of agricultural output:
(a) The Value of Production Consumed L,ocally (for each crop K).(b) The Value of Production Exported (for each crop K).(c) Total Value of Production (for each crop K).(d) Total Value of Productlion (for all crops).
1/ If, for example, exported grains are of higher quality than those consumedlocally, it will be necessary to adjust upward the farmgate prices of theexported production.
ANNEX 2Page,17
Sub-model 7 - Output
Value of Agricultural Production - Maize($ 000)
Total Value of Value of Production Value of ProductionMaize Production Consumed Locally a/ Exported
Year Without With Without With Without With
1 1044.3 1044.3 839.1 839.1 205.2 205.22 1044.3 1044.3 860.2 860.2 184.1 184.13 1044.3 1194.6 881.6 881.6 162.7 313.04 1102.3 1318.9 903.7 948.9 198.6 370.05 1102.3 16)43.5 926.3 972.7 176.0 670.96 1102.3 2148.3 949.4 996.9 152.9 1151.47 1160.3 2612.2 973.1 1021.8 187.2 1590.48 1160.3 3033.8 997.5 1047.4 162.8 1986.49 1160.3 3551.6 1022.4 1073.4 137.9 2478.2
10 1218.3 3882.7 1048.0 1100.4 170.3 2782.311 1218.3 4228.3 1074.2 1127.9 144.1 3100.412 1218.3 4509.5 1101.1 1156.2 117.3 3353.413 1276.4 4799.5 1128.6 1185.0 147.8 3614.5
a/ Value of local consumption in the with-project case has beenadjusted for consumer loss from. year 4' onwards. The assumptions under-lying this adjustment are treated in Annex 1; see also Table 1-A, footnote 2.
38. By aggregating the value of agricultural production for eachcrop, Sub-model 7 also computes the Total Value of Production for AllCrops (TVPA). The difference between without- and with-project TVPAconstitutes net benefit stream B1 , which is fed into the Cost-Benefitpackage (CBPACK) at a later stage of the analysis.
Sub-nodel 8 (Agricultural Production Costs)
39. Total production costs per crop are computed by addingthe following items:
(a) Production Costs on Old Land (PCOL). 1/(b) Production Costs on New Land (PCNL). 1/
1/ As mentioned above, distinguishing between production costs on "old", and"new" land is a refinement which enables the user to specify separatecost functions for each type of land. In many cases, unit productioncosts 'on New Land will be slightly higher, if only because such landis generally further removed from productive services and/or of lowerquality.
ANNEX 2Page 18-
(c) Incremental Agricultural Development Costs (TADC).(d) Clearing Costs on New Land (CCNL).
400 These items must be estimated in both the without- and with-project cases, in order to identify net costs of production.
41. The Sub-model 8 input and output data. for maize issurnarized below.
Sub-model 8 - Iut
Production Cost Components - Maize( per ha)
Without With
Production Cost on Old Land (POOL) 1/ 63.00 63 .00Production Cost on New Land (PCNL) T/ 66.00 66.oo0'Incremntal Agric. Dev. Costs (IADC) 5/ - 121.00Clearing Costs on New Land (CCNL) 25.00 25.00
', Inc:Ludes labor and seed in this example.
2/ Production Costs on both Old and New Land (PCOL and PONL) may be reducedwith the project, reflecting increased technological or labor efficiencies.Such cost reductions should not reflect savings on transported inputs,which are computed separately m Sub-model 9.
31/ Includes incremental (minimum package) expenditures for improvedseed, fertilizer, and the economic cost of extension services, inthis example. Again, these are incremental expenditures - over andabove what is already included in Production Cost on Old and New Land.
42. IBy aggregating costs of production for each crop, Sub-model 8computes the Total Production Costs of All Crops (TPCA). The differencebetween without- and with-project TPCA constitutes net cost stream Cl,which is fed into the Cost-Benefit package via Sub-model 15.
ANNEX 2Page 19
Sub-model 8 - Output
Agricultural Production Costs -Maize($ 000)
Production Production Min.Package Clearing TotalCost on Costs on Improvemt. Costs on Production
Ye ar <dL "and Now Land Costs New Land Costs- wJ^Vo wtth i/o v: th w/-o with w/o withF _w/o witil
1 444.5 444.5 - - - - - - 444.5 444.52 444.5 444.5 4- - - - - 44.5 444.53 444.5 444.5 - - - 51.2 - - 444.5 495.74 444.5 444.5 25.9 25.9 - 72.1 9.8 9.8 480.2 55( .35 444.5 444.5 25.9 60.9 - 154.5 - 13.3 470.4 673.26 444.5 444.5 25.9 87.3 - 304.1 - 10.0 470.4 845.97 444.5 444.5 51.7 123.8 - 432.3 9.8 13.8 506.o 1014.48 444.5 444.5 51.7 150.6 - 553.6 - 10.1 496.2 1158.89 444.5 444.5 51.7 177.4 - 707.L - 10.1 496.2 1339.410 444.5 444.5 77.6 204.2 - 798.3 9.8 10.1 531.9 1457.111 444.5 444.5 77.6 231.0 - 894.0 - 10.1 522.1 1579.612 444.5 44.5 77.6 257.7 - 968.3 - 10.1 522.1 1680.613 444.5 444.5 103.4 284.6 - 1045.4 9.8 10.1 557.7 1784.6
Sub-model 9 (Agricultural Transporter's Costs and Revenues)
43. The derivation of agricultural transport costs and pricesis a key phase of rural road analysis. Transport cost savings passedon to the farmer determine the extent to which with-project farmgateprices are assumed to increase. Higher farmgate prices in turn in-fluence increases in production. The linkage between transport cost
savings and increased production requires that transport cost and pricemechanisms be understood before predictions are made as to with-projectlevels of agricultural output.
44. Sub-model 9 incorporates two variables to describe the unit costsand prices of agricultural transporters: (a) Agricultural Transport Priceper Unit (ATPU), and (b) Agricultural Transport Cost per Unit (ATCU).Costs and prices are given in monetary units per ton-km.
45. Since unit costs and prices vary according to type of conveyance,it is necessary to estimate ATPU and ATCU for each conveyance type. Inthis example, agricultural output is assumed to be transported by asingle vehicle type, 10-ton trucka. 1/
1/ In its present state of development, the computer model can calculatetotal transport costs and prices for up to six different conveyance types.
ANNEX 2Page 20
46. Standard road appraisal techniques are used to calculateagricultural vehicle operating costs. The use of these techniquesrequires three types of information:
(a) Types of Agricultural Vehicles (Conveyance Types) Using the Road
For simplicity, it is assumed that all agriculturalcommodities are moved on 10-ton trucks. The averageload factor is assumed to be 70 percent.
(b) Terrain
The following breakdown is assumed: 40 percent flat;48 percent rolling; 12 percent mountainous.
(c) Unit Vehicle Operating Costs, by Road Surface Type
Total unit vehicle operating costs typically includeexpenditures for fuel, oil, wages, interest, depreciation,tires and tubes, and spare parts. These cost elementsmust be estimated in both the without- and with-projectcases.
47. Without- and with-project agricultural vehicle operating costsare calculated below by adjusting the estimated cost data to conformto the specific terrain of the hypothetical road.
Agricultural Vehicle (10-ton Truck) Operating Costs(¢/vehicle-km)
Without Project With ProjectTerrain Percent (arth) (Gravel)
Flat, Straight 20 119.7 77.1Flat 20 133.2 85.1Rolling 48 160.1 101.1Mountainous 12 220.8 137.1
Average ATCU(7-ton load), #/ton-km 22 14
Transport Cost Savings, #/ton-km 8
48. The distribution of transport cost savings between theagricultural and transport sectors is strongly influenced by the degreeof competitiveness of the transport industry. The more competitive the
ANNEX 2Page 21
industry, the greater is the likelihood that transport cost savingswill be passed on to the farmer. Whenever possible, assumptionsconcerning the distribution of project-induced transport cost savings(especially as they relate to higher ex-farm prices) should be checkedagainst what has actually occurred as a result of comparable roadImprovements in other regions of the country.
49. In this case, it is assumed that 60 out of the 8¢ transportcost savings will be passed on to the farmer,l/and 2¢ will be re-tained by the transport sector. The without-project transport pricefor maize is assumed to be $10.00/ton, or 29¢/ton-km assuming a 35-kmaverage trip. A comparison of the without-project transport price andcost (29¢ ton-km versus 22¢ ton-km) indicates an original margin of 70per ton-km. Increasing this margin by 2¢ will increase the transportmargin in the with-project case to 9¢ per ton-km, resulting in a newtransport price of 230 per ton-km. Sub-model 9 inputs for this caseare thus as followst
Sub-model 9 - Input
Agricultural Vehicle Operating Costs and Transport Prices(¢/ton-km)
Without With
Average Transport Price per Unit (ATPU) .29 .23Average Transport Cost per Unit (ATCU) .22 .14
a/ With-project transport prices and costs do not take effectuntil year 4, following road construction.
50. Once unit costs are specified as above, Sub-model 9 calculatesagricultural transport costs and revenues for each crop (shown belowfor maize only). By taking the difference between with and withouttransport-costs, Sub-model 9 identifies net transport costs which aretransferred to Sub-model 14 as stream C2. Net revenues (with minuswithout), are calculated similarly and represented in Sub-model 14by stream B2.
51. If more than one agricultural vehicle type is represented,additional information is required to compute transport costs and
1/ Multiplying 6¢/ton-km by 35 km (the average round trip) yields asavings of approximately $2.00/ton, the amount by which with-projectex-farm prices are increased (see Sub-model 7). If agriculturalcommodities are transported on more than one type of conveyance,a weighted average should be used to determine with-project ex-farmprices.
ANm\EX 2Page 22
revenues. Obviously, unit costs and prices must be determined foreach conveyance type. It is also necessary to specify a transportmix (TM), indicating the degree to which the various conveyancetypes (e.g., trucks, vans, mules) are used to export specific cropsor primary commodities from the area of influence. 1/ As is often thecase, road improvements will lead to a shift in the transport mixfrom say, mules, to vans or trucks. The degree to which such shiftsoccur will influence transport cost savings and,ultimately, themagnitude of project-induced increases in the ex-farm price ofspecific crops.
Sub-model 9 - Output
Agricultural Transporter's Costs and Revenues - Maize($ 000)
Agricultural AgriculturalTransport Costs Transuort Revenue
Year Without WitIh Without Wit
1 10.7 10.7 14.1 14.12 9.6 9.6 12.6 12.63 8.5 16.3 11.1 21.h4 10.3 12.1 13.6 19.95 9.2 21.9 12.1 36.06 8.0 37.6 10.5 61.87 9.7 52.0 12.8 85.48 8.5 64.9 11.2 106.69 7.2 81.0 9.5 133.0
10 8.9 90.9 11.7 149.311 7.5 101.3 9.9 166.612 6.1 109.5 8.0 180.013 7.7 118.1 10.1 194.0
52. In the example, cost savings on transported agriculturalinputs are assumed to be negligible, although the program has thecapability to calculate these benefits. The computation of Agricul-tural Input Cost Savings (AISK) requires the user to specify InputRatios (IR) for each type of production (e.g., .05 tons of transportedinputs for each ton of maize output). Using these ratios, the programestimates total input requirements and transport costs both with andwithout the project. 2/ The with-project cost savings are shown asstream B in CBPACK.
1/ The computer model permits the user to specify a separate TransportMix in the without- and with-project cases.
2/ Cost savings on "tgenerated"f inputs are reduced by half to avoidoverstating benefits.
ANNEX 2Page 23
53. To avoid double-counting, cost savings on transported inputsshould not be reflected in Sub-models 8 (Agricultural Production Costs)or 9 (Agricultural Transporter's Costs and Revrenues).
Sub-model 10 (Traffic)
54. Sub-model 10 computes agricultural and non-agriculturaltraffic levels for each year, both with and without the project. Thisinformation provides a basis for the formulation of appropriate roaddesign standards.
55. Agricultural traffic is computed by relating the ExportableSurplus or each commodity to user-specified estimates of TransportMix (TM) and Average Loads (AL). 1/
56. In the computation of non-agricultural traffic, a distinctionis made between normal and generated traffic because of the differenttreatment of vehicle operating cost savings in each case. 2/ In thisexample, non-agricultural traffic is assumed to consist entirely of10-passenger land rovers. The computer program has the capabilityto calculate traffic streams for up to 4 non-agricultural vehicle types.
Sub-model 11 (Non-Agricultural Vehicle Operating Cost Savings)
57. In Sub-model 11, benefits attributable to the road and imputedto non-agricultural vehicles are calculated by means of the vehicleoperating cost (VOC) data shown below and the traffic volumes determinedin Sub-model 10. The difference between the with- and without-projectcases constitutes a net benefit which is transferred as B3 stream toSub-model 14.
1/ To briefly illustrate the agricultural traffic computation process(which the computer performs internally), let us say that 1,000tons of maize are exported in a given year and that the TransportMix is specified as trucks (.80) and mule-drawn carts (.20). Thatis, 80% of all maize exports, 800 tons, are carried by truck and theremainder by cart. If the Average Loads are specified as 8 and .5tons respectively, 100 trucks and 400 carts will be needed. Assumingfarm to market transportation is a round-trip process, the agricul-tural traffic printout will indicate 200 truck trips and 800 carttrips for the year in question.
2/ Cost savings on generated traffic are reduced by half; cost savingson normal traffic are taken at full value. These computations areperformed internally in Sub-model 11. In this simplified example,generated non-agricultural traffic is assumed to be negligible.
ANNEX 2Page 24
Sub-model 11
Non-Agricultural Vehicle Operating Costs(¢/vehicle-km)
WithoutProject With-Project
Terrain Percent (Earth) (Gravel)
Flat, Straight 20 76.1 45.1Flat 20 78.0 46.2Rolling 48 84.0 50.8Mountainous 12 91.2 61.1
Average Non-Ag. VOC, O/veh-km 82 50
Vehicle Operating CostSavings, ¢/veh-km 32
Sub-model 12 (Road Construction and Maintenance Costs)
58. Sub-model 12 summarizes road construction and maintenancecosts and transfers these to the Cost-Benefit Sub-model as coststreams C3 and C4 respectively.
Sub-model 12
Road Construction and Maintenance Costs
Construction MaintenanceCosts (C3) Costs (CU)
Year ($ 000) ($ 000)
1975 755.0 -1976 1000.01977 765.0 -1978 _ 35.01979 - 35.01980 - 35.01981 _ 87.01982 - 35.01983 - 35.0198 - 35.01985 _ 87.01986 - 35.01987 _ 35.0
ANNEX 2Page 25
Sub-model 13 (Other Project Costs and Benefits)
59. FR75 has the built-in capability of handling additional costand benefit streams should this be necessary. The capability has notbeen used in this example.
Sub-model 14 (Aggregation of Project Costs and Benefits)
60. This sub-model collects all costs and benefits as identifiedin the preceding sub-models. The resulting cost and benefit streamsare then transferred to the Cost-Benefit package (Sub-model 15), foreomputation of the rate of return or other desired calculations.
Sub-model 14 - Output1/2/
Aggregation of Net Cost and Benefit Streams - Maize($ 000)
Net Net NetNet Increm. Increm. Increm.
Increm. Agr. Rd. Agr. Agr. Non-Agr.Agr.Prod. Trnsp. Const. Maint. Prod. Trnsp. Veh.Cost
Yr. Cost Cost Cost Cost Value Rev. SavingscI -C2 C3 C4 __-- B2 B3CT _3 __ _ _2
1 755.0 - - -2 - - 1,000.0 - -
3 51.2 7.8 765.0 - 150.3 10.3 -h 72.1 1.8 - 35.0 216.6 6.3 20.45 202.8 12.7 - 35.0 541.2 23.9 20.46 375.5 29.6 - 35.0 1,0h6.0 51.3 24.57 508.4 42.2 - 87.0 1,451.9 72.6 24.58 662.6 56.4 - 35.0 1,873.5 95.4 24.59 843.2 73.8 - 35.0 2,391.3 123.5 28.610 925.2 82.0 - 35.0 2,664.4 137.6 28.611 1,057.5 93.8 _ 87.0 3,010.0 156.7 28.612 1,158.5 103.4 - 35.0 3,291.2 172.0 32.713 1,226.9 110.4 - 35.0 3,523.1 183.9 32.7
1/ All cost and benefit streams are "net," that is, with-project minus
without-project. Note that complementary investment expenditures are
inoluded in the agricultural production cost stream.
2/ Benefit stream B4 is not shown since cost savings on transported agri-cultural inputs are negligible in this example. Similarly, streamsCs and B5 (Other Project Costs,and Benefits, respectively) are zeroin this example and therefore not shown.
ANNEX 2Page 26
Sub-model 15 (Cost-Benefit Analysis)
61. CBPACK computes a single net benefit stream from thepreceding cost and benefit streams, and then computes the rate ofreturn, which is 25% in this case. It should be noted that thisrate of return applies to the combined investment package consistingof road construction and complementary investments related to maizeproduction. As indicated before, we have only considered one crop -maize - in this case study.
Sensitivity Analysis
62. The combined capabilities of the feeder road package andCBPACK greatly facilitate sensitivity analysis. Individual variables(such as yields, cultivated areas and unit production costs) are easilyadjusted within the feeder road package, while cost and benefit streamsare manipulated in CBPACK. Rates of return can be tested under any setof assumptions desired. No example is provided here, as the techniquesof sensitivity analysis are well known.
ANNF X 2Table 1-A
Agricultural Costs, Prouction Value, andrsnsport Code "Wdth" wrcjeOt
SUB-MODEL0 ff7 L7,7 Ey [2 7 L7 & i77
1 2 3 4 5 6 7 8 9 10 11 12 -13 14 15 16 17 13 1 20Crop Area Total Incremental Improved 7Y i e 1 d s 1/ Agric9 leral Produ 112o1 Locl Consumption 2/ 1EportbI S1rpl Ta 3a2Breakdo.e Newly Cropped Area Crop Area Unimproved Lmproved Unimproved lmprove3 Fotal opulation Per capita Total Price- Value tr..ntity yrice Value Prod.(Ma..el ha. ha. ha. h.. ta , Y( tol 2. ton/ha, ten/ha, tone _ kg tons -C3 $/ton 9(1,000) ton $/ton 9(170 $(1;000)
CoT 2 Eel 3 Yr(n) Tol~-'l 2 Ill 2-Tel 5)~ Eel 6 Tecl 9 cl1Telb Ccl I1 Tel PT Cc Cllato Input _ Orig. ha. Tel S Yr(n_lI Inute a Tel S Input Input a l Co 7 x Col 8 a Ceo1Eel 10 Input Input a Tel 13 Input x Col 15 - C91 14 Input x CTl 18 I Cel 19
Ye-r 1 7,056 0 0 O 0 1.0 1.0 7,056 0 7,056 63,000 90.0 5,670 148 839.1 1,386 148 205.2 1,044.3
7,056 0 0 0 0 1.0 7,056 0 7,056 64,575 90.0 5,812 860.2 1,244 1 84.1 1,044.3
2 7,056 0 0 6 423 3.4 6,633 1,439 8,072 66,189 90.0 5,957 881.6 2,115 313.0 1,194.6
4 7,448 392 392 8 596 6,852 2,026 8,872 67,844 94.5 6,411 948.9 2,467 150 370.0 1,318.9
5 7,980 924 532 16 1,277 6,703 4,341 11,044 69,540 6,572 972.7 4,473 670.9 1,643.5
6 8,379 1,323 398 30 2,514 5,865 8,547 14,412 71,279 6,736 996.9 7,676 1,151.4 2,148.0
7 5,932 1,876 553 40 3,573 5,359 12,148 17,507 73,061 6,904 1,021.8 10,602 1,590.4 2,612.2
9,338 2,282 406 49 4,576 4,762 15,557 20,319 74,887 7,077 1,047.4 13,243 1,986.4 3,033.5
9,744 2,688 406 60 5,846 3,898 19,878 23,775 76,759 7,253 1,073.4 16,522 2,478.2 3,551.6
10 10,150 3,094 406 65 6,598 3,553 22,432 25,984 78,678 7,435 1,100.4 18,549 2,782.3 3,882.7
11 10,556 3,500 406 70 7,389 3,167 25,123 28,290 80,645 7,621 1,127.9 20,699 3,104.9 4,228.3
12 10,962 3,906 406 73 8,002 2,960 27,208 30,167 82,661 7,812 1,156.2 22,356 3,353.4 4,50o.5
13 11,368 4,312 406 76 8,640 2,728 29,375 32,103 84,728 8,007 1,185.0 24,096 3,614.5 4,799.5
' The numbers sho-n is brackets separate the -alculotion.iots the Seb-eadels as described is A.e.e 2.
i Yield on improved eand may vary due to fertility, intensity and timing of sgrieultural services, etc.Therefre, tfe 'impr-ved yields" may not be constant for all years.
7/ VoI-e 0 eo-l conasuption in the "vitht project ease (following completion of road -cntruction) has beenequalIzed so that Producers' gait - Local Consumere' loss = 0. In the example, tho Producers' gain of $2per tcn is e.actly rffset by the L.Ca] (on-farn) Conesoere' loss of $2 per ton.
ANiNEX 2Table 1-B
Agricultural Ccsts, Prcluctien Valuo, andTransport Cests 'With' Prcjectl
SUB-MODEL* L 897
_________ 21 22 23 24 25 26 27 28 29 30 31 32 33Production Cost Production Cost Minimum Package Clearing Coot Average Transport Average Transport
Old Land New Land Improvement Cest New Tand Total Price CostTotal Total Total Total Prod.Cost Revenue Total
$/ha $(l,000) $/ha $(1,000) $/ha $(1,000) $/ha $(i,000) $(l,000) $/ton-kmi $(l,00C) $/ton-km $(l,00O)Begin. ha. C$l 3 x Col 6 x Ccl x Cols 22±26 Pcl 3OxRdDist Col 32xRdDist
Calcul. Input x Cnl 21 Input Col 23 Input Col 25 Input Col 27 +26+28 Input x Ccl 17 Input x C0l 17
Yr.l 63.oo 444.5 66.oo 0 121 0 25.00 0 444.5 0.29 14.1 0.22 10.7
2 0 0 0 444.5 " 12.6 . 9.6
3 0 51.2 0 495.7 21.4 " 16.3
4 25.9 72.1 9.8 552.3 0.23 19.9 0.14 12.1
5 60.9 154.5 13.3 673.2 36.o 21.9
6 87.3 304.1 10.0 845.9 61.8 37.6
7 123.8 432.3 13.8 1,014.4 85.4 52.0
8 150.6 553.6 10.1 1,158.8 106.6 64.9
9 177.4 707.4 10.1 1,339.4 133.0 81.0
1l0 204.2 798.3 10.1 1,457.1 149.3 90.9
11 231.0 894.o 1C.1 1,579.6 166.6 101.3
12 257.7 968.3 10.1 1,680.6 180.0 109.5
13 284.6 1,045.4 10.1 1,784.6 194.0 118.1
*The numbers shown in brackets separate the calculationsinto the Sub-models as described in Annex 2.
A= 2Table 2-A
Agricultural Costs, Production Value, andTransport Costs "Without" Project
SUB-MODEL* [2J N37 T7 X _61 & E77_
2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 21
Croo Area Total Incremental Inproved Y i e 1 d s Agricaltural Production L o c 1 C n n a u a p t i o n Exportable Surplus o ue
Pareakdaan Ne-ly Cro.e.d Are. Crop Area Unimproved Improved Unimproved Improved Total Population Per capita Total Price Value Caantity Prlce Value Prod.
(*al.e) ha. ha. ha, ha. tan/ha on/ha tcos to tna kg ton $/t $(,000) ton $/ton Col 0 $(1,000)
Co1i2 col 3 Yr(n) - Col 2 x (Cols 2-6) Col t Mal 9 Co 12,ol 14 CoT 11 Co.l 17 .lol 4-
Calcul. Input - Orig.ha. Col 3 Yr(n-l) Input Cal 5 Input Input x Col 7 x Cal 8 r Cal 10 Input Input a Cal 13 Input a Cal 15 Cal 14 Irput x Col 18 Clol 19
Year 1 7,056 0 0 0 0 1.0 3.4 7,056 0 7,056 63,Ooo 90.0 5,670 148 839.1 1,386 148 205.2 1,314.3
2 7,o56 0 0 7,056 7,056 64,575 5,812 860.2 1,244 184.1 1,044.3
3 7,056 0 0 7,056 7,056 66,1i8 5,957 88L.6 1,099 162.7 1,044.3
4 7,448 392 392 7,448 7,448 67,844 6,106 903.7 1,342 198.6 1,102.3
5 7,448 392 0 7,448 7,448 69,540 6,259 926.3 1,189 176.0 1,102.3
6 7,448 392 2 7,448 7,448 71,279 6,415 949.4 1,033 152.9 1,102.3
7 7,840 784 392 7,840 7,840 73,061 6,575 973.1 1,265 187.2 1,160.3
8 7,841 784 0 7,840 7,840 74,887 6,740 997.5 1,102 162.8 1,160.3
9 7,840 784 0 7,840 7,840 76,759 6,908 1,022.4 932 137.9 1,160.3
0, 8,232 1,176 392 8,232 8,232 78,678 7,081 1,048.0 1,151 130.3 1,218.3
8,232 1,176 0 8,232 8,232 80,645 7,258 1,074.2 974 144.1 1,218.3
12 8,232 1,176 0 8,232 8,232 82,661 7,440 1,101.1 792 117.3 1,218.3
13 8,624 1,568 392 8,624 8,624 84,728 7,626 1,128.6 998 i47.8 1,276.4
-The r,uobers shcun in brackets separate the calculationsint, the Sub-models no described in ASnne. 2.
ANNEX 2Table 2-B
Agricultural C>sts, Prnduosi. n Value, andTransport Costs "Withcut" Project
SUB-MODEL* [ f9J21 22 23 24 25 26 27 28 29 30 31 32 33r oucton Cost Production Cost Mlnfrum Package Clearing Cost Average Transport Average TransportOid Land New Land Improvement Cost New Land Total Price Cost
Total Total Total Total Prod.Cost Revenue Total$/ha $((1000) $/ha 1(1,000) $/ha Col59 $/ha $(1,000) $(1,000) $/ton-lun 4$40x9 s $/ton-kmD
Beg1i.= 6oI3 0 P6Co 4 Cols 2224T 1W I30iBd Dist CHigodols~Calculation Input x Col 21 Input x Col 23 Input x Col 25 Input x Col 27 26 + 28 Input x Col 17 Input x Col 17
Year 1 63.00 444.5 66.00 0 25.00 0 444.5 0.29 14.1 0.22 10.7
2 0 0 444.5 12.6 9.6
3 0 0 444.5 11.1 8.5
4 25.9 . 9.8 480.2 13.6 10.3
5 25.9 0 470.4 12.1 9.2
6 25.9 0 470.4 10.5 8.o
7 51.7 9.8 506.0 12M8 9.7
8 51.7 0 496.2 11.2 8.5
9 51.7 0 496.2 9.5 7.2
10 77.6 9.8 531.9 11.7 8.9
11 77.6 0 522.1 9.9 7.5
12 77.6 0 522.1 8.o 6.1
13 103.4 9.8 557.7 10.1 7.7
* The numbers shown in brackets separate the calculationsinto the Sub-models as described in Annex 2.
ANNEX 2Table 3
Non-Agricultural Vehicle OperatingCost Savings "With" Project
SUB-MODEL* rOJ7 1,7
_34 3.5 5
Unit Vehicle Total Non-Agric.Normal Oper. Cost Vehicle Oper. CostTraffic 1/ Savings SavingsV.P.D. $/km $(1,000)
(Cola 34o35xRd.dial -sto_ Input Input Distx6da)
Year 1 4 0 0
2 4 0 0
3 5 0 0
4 5 0.32 20.4
5 5 i 20.4
6 6 it 24.5
7 6 it 24.5
8 6 it 24.5
9 7 " 28.6
10 7 it 28.6
11 7 if 28.6
12 8 32.7
13 8 " 32.7
1/ Generated non-agricultural traffic assumed to be negligible.
* The numbers in brackets separate the calculations into theSub-models as described in Annex 2.
T 2b
Summary of Project Costs, Benefits and Net Present Worth
SUB-MODEL5
47
3 37 38 39 40 41 42 43 44 45Agrit. Prod. Agsir. Prod. Net Incr. Agric. 1Maite Agric. Maize Net Incr. Road Road met
Cost Cost Product. Trasup. Cost Transp. Cost M4aize Coestruct. ainantee. Cost(With) (Without) Cost Cl (With) (Without) Transp. C2 Cost C3 Cost C4a Stre
S'l.0001) S1.000) $(t.000) $01 .000) 91 .O00M) $(1.000) S(1.0605 9(I.000)Cal1Cul. cot 29 Cot 29 Cot 37 _ Col 33 Col 33 Col 40 - Cola 39+42
Withk Without Col 38 With Without rol 41 Inpu t Xpt 43+44
Yr. 1 444.5 444.5 0 t0.7 10.7 0 755.0 0 755.02 444.5 444.5 0 9.6 9.6 0 1,000.0 0 1,000.03 495.7 444.5 51.2 16.3 8.5 7.8 765.0 0 824.04 552.3 480.2 72.t 12.1 10.3 1.8 0 35.0 10t.95 673.2 470.4 202.9 21.9 9.2 12.7 0 35.0 250.56 845.9 470.4 375.5 37.6 8.0 29.6 0 35.0 440.17 1,014.4 506.0 508.4 52.0 9.7 42.3 0 87.0 637.78 1,158.8 496.2 662.6 64.9 8.5 56.4 0 35.0 754.09 1,339.4 496.2 843.2 81.0 7.2 73.8 0 35.0 952.0
10 1,457.1 531.9 925.2 90.9 8.9 82.0 0 35.0 1,042.011 1,579.6 522.1 1,057.5 101.3 7.5 93.8 0 87.0 1,238.312 1,680.6 522.1 1,158.5 109.5 6.1 103.4 0 35.0 1,296.913 1,784.6 557.7 1,226.9 118.1 7.7 110.4 0 35.0 1,372.3
* The Road Conatruction mad Maintenance Costs shown in Cots 43 and 44 respectively, arefirst specified in Sub-model 12. Other Project Costs and Benefits (assumed to equalzero In this example), are specified in Sub-model 13.
SUB-MODEL5
L 5,
46 47 48 49 50 51 52 53 54 55 56Total Value Total VSae I-cresse Net Agric. 0o-n_Ag.Veh.
Prod. Prod. Prod. Transport. Oper. Ccst Total 2 Net P.W, P.W.'With) 'Without) Val.e B' Pev. 82 Savings P3 Benefits Benefits Factor N.P.V. Factor N.P.V.
s_ _ S(5.000) $f1.0001) S(l.005 ________1oo___ _ (_____ 237. 237. 257. 257Calcul. Cot 20 Col 20 Csl 46 - C:1 31ilVl- Cot 36 Cols 48+49 Col 51 -
With Without Cal 47 Cv1 31 witho _ _ +50 Col 45
Yr. 1 1,044.3 1,044.3 0 0 0 0 -755.0 1,000 -755.0 1.000 -755.02 1,044.3 1,044.3 0 0 0 0 '1,000.0 .813 -813.0 800 -800.03 1,194.6 1,044.3 150,3 10.3 0 160.6 -663.4 .661 -399.5 .640 -386.84 1,318.9 1,102.3 256.6 6.3 20.4 243.3 134.4 .537 72.2 .512 68.85 1,643.5 1,102.3 545.2 23.9 20.4 585.5 335.0 .437 146.4 .410 133.36 2,148.3 1,102.3 1,046.0 51.3 24.5 1,121.8 681.7 .355 242.0 .328 223.67 2,612.2 1,160.3 5,451.9 72.6 24.5 1,549.0 911.3 .289 263.4 .262 238.88 3,033.8 1,160.3 5,873.5 95.4 24.5 1,993.4 1,239.4 .234 290.0 .210 260.39 3,551.6 1,160.3 2,391.3 123.5 28.6 2,543.4 1-591.4 .191 304.0 .168 267.4
10 3,882.7 1,218.3 2,664.4 137.6 28.6 2.830.6 1,788.6 .155 277.2 .134 239.711 4,228.3 t,218.3 3,010.0 156.7 28.6 3,195.3 1,957.0 .126 246.6 .107 209.412 4,509.5 1,218.3 3,291.2 172.0 32.7 3,495.9 2,199.0 .103 226.5 .086 189.513 4,799.5 3,276.4 3,523.1 183.9 32.7 3.739.7 2,367.4 .83 19675 .069 163.4
To tal +297.3 +52'.0
1/ Net Agricultural Transport Revenue equals Ag. Trans. Rev. With - Ag. Trans. Rev. Without INTERNAL RATE OF RETURN - 25 aercent(i.e., Col 31 With - Col 31 Without).
2/ Benefit stream E4 not included since cost savings on transported agricultural inputs areassumed to be zero in this example. Similarly, streams C5 and B5 (Other Projects Costs, andBenefits, respectively), are zer in this example end therefore not shown.
ANNEX 3Page I
PRELIMINARY SCREENING AND SELECTION OF RURAL ROADS -A FRAMEWORK 1/
Introduction
1. In planning rural road programs, government agencies are oftenfaced with a large number of construction proposals, usually far more thancan be accomnodated within financial and administrative constraints. Thissituation is aggravated where local participation is envisaged in theplanning and implementation stages of the program; invariably, the roadprograms developed through local consensus tend to be highly ambitious.Therefore, it becomes necessary to devise a rational system of screeningthe proposed road projects; the use of such a screening technique wouldensure the formulation of a road program that would serve the bestinterests of 'the community.
2. An obvious screening criterion would be the use of an economicindex, such as the present value of net economic benefits generated bythe procedures presented in the preceding sections of this paper. However,from an operational viewpoint, the detailed economic analysis of allroad proposals is cumbersome, expensive and not fully commensurate withthe comparatively low level of capital investment needed for such roads. 2/Hence, it is suggested that all proposed rural road projects should befirst screened and rank-ordered in accordance with socio-economic criteriaderived from relevant goals and objectives (national, regional or local,as appropriate). Then, ir, accordance with the priority ordering, thefinal set of road proposals should be submitted to detailed economicanalysis. Such a screening procedure would result in substantial econonyin the evaluation effort.
3. There are a number of unresolved questions regarding the develop-ment of appropriate screening devices. First, since it is necessary toprecisely define ideal selection criteria, should project choice be basedon the traditional concept of economic efficiency (as discussed in thetext), or should the criteria include considerations related to publicsavings and income distribution? Second, are there inexpensive andeasily operable rules which will screen projects for in-depth analysisbetter than random selection? Third, which among the several alternativescreening rules, all of which may be better than random choice, is to bepreferred? Plans are underway for a comparative study program in whicha number of roads will be evaluated by alternative screening proceduresas well as by a full-scele economic analysis.
1/ Prepared by Asif Faiz, Transportation Departnent, IBRD.
2/ This discussion pertains to a network of relatively short, tertiary orlower order local rural roads (average length 10-20 km). It is furtherassumed that budgetary limitations do not permit the implementation ofall local road proposals. Where the rural road program involves theconstruction of primary or secondary roads, the detailed economic analysismust be applied to all proposed roads.
ANNEX 3Page 2
4. Besides its obvious advantage in restricting detailed economicanalysis to those roads which show initial promise, the screening tech-nique could possibly serve, in the future, as a simple tool in certaincases for the overall evaluation of rural road projects. However, beforethat can happen, a much better understanding of the workings of therural society must be reached. To this end, the Bank is embarking ona long-term research program which will monitor and analyze the socio-economic impact of rural road investments with a view, among other things,to improve the understanding of rural change.
5. Pending the development of satisfactory and generally acceptablescreening techniques, this Annex discusses, for illustrative purposes,a procedure based on several contributions to transport literature.
Ranking and Rating Schemes 1/
6. In operational terms, the screening procedure consists of aproject ranking or rating scheme structured around both the tangible(market) anui intangible (non-market) consequences of rural road projects.
A further requirement is that the consequences should relate to appropriategoals and objectives. There is no specific rating or ranking method thathas been accepted for universal use in planning operations because ofthe subjective nature of these methods. The method recommended for theproposed screening procedure is termed the weighted rating technique. 2/The development and use of the technique is illustrated by the followinghypothetical example. It should be noted that no position on criteriaand value judgments is taken. The example is only for illustration ofthe technique as such. However, we plan to undertake in a number ofBank projects, a study program which will correlate various sets ofscreening criteria and weights with indices derived from economicand social analysis.
1/ For a detailed discussion of objectives of analysis, see E. N. Thomasand J. L. Schofer, "Strategies for the Evaluation of AlternativeTransportation Plans," National Cooperative Highway Research ProgramReport No. 96, Highway Research Board, 1970, Washington, D.C. Chap. 7.For details of rating/ranking methods see:
(a) Morris Hill, "A Goals-Achievement Matrix for EvaluatingAlternative Plans," Journal of American Institute of Planners,January 1968, pp. 19-29.
(b) R. Winfrey and C. Zellner, "Summary and Evaluation of EconomicConsequences of Highway Improvements," National CooperativeHighway Research Program Report No. 122, Highway ResearchBoard, 1971, Washington, D.C., Chap. 10.
2/ For an excellent description of theoretical underpinnings and practicaluse of a similar technique see, W. C. Vodrazka, C. C. Schimpelerand J. C. Corradino, "Citizen Participation in Louisville Airport SiteSelection," Record 555, Transportation Research Board, 1975, pp. 37-51.
ANNEX 3Page 3
Use of the Weighted Rating Technique - An Illustrative Example
7. A proposal prepared by district development authorities callsfor the construction of 7 local rural roads having an aggregate lengthof 360 km. Since the financial allocation for the region is insufficientto support a program of this size, preliminary screening is necessary.In this example, the objective of the screening process is to identifya set of roads totalling 200 km for detailed evaluation. Roads whichare either less than 2 km in length or within 5 km of other roads (basicconstraints), are automatically eliminated from further consideration.
Sequential Steps in the Weighted Rating Technique
8. The practical application of the weighted rating techniquerequires the following procedural steps:
(1) Development of the rating scheme;
(2) Establishment of relative weights for factors;
(3) Preparation of input data matrix for proposed roads interms of factor values, including other relevant inputsand constraints;
(4) Conversion of factor values to common ratings andcalculation of weighted ratings for the proposed roads;
(5) Final screening and priority ordering of the proposedroads.
9. Development of the Rating Scheme: The rating scheme embodies thedelineation of important categories of consequences of the proposedroads. The development of the rating scheme requires the following inputs:
(i) Criteria. These are relatively abstract values of standardsused to measure the performance of specific rural road programs. Sincecriteria relate directly to relevant goals and objectives (national,regional or local, as appropriate), they would vary from program toprogram, depending upon the related priorities. Examples of ratingcriteria may be economic activity,social and economic welfare, environ-mental impact, etc.
(ii) Factors. Each criterion is divided into a number of factorsor sub-components in order to isolate specific items of interest. Factorsamplify, in relatively concrete terms, the values embodied in a criterion.The criterion of social service, for example, may be expanded intofactors concerning improved accessibility.
ANNEX 3Page 4
(iii) Measurement Units. Although rating factors describe theconsequences of the proposed roads in relatively explicit terms, thefactors have to be metricized in terms of specific measuring units.Net increase in agricultural production, for instance, will normallybe specified in tons of agricultural output, while the net increasein livestock production could be measured in terms of heads of cattle.For qualitative factors, such as the presence of a school in the areaof influence, the evaluation is in terms of an affirmative (yes) ornegative (no) response.
(iv) Range of Factor Values. Once the measuring unit is definedfor a given factor, a range of factor values in terms of the measuringunit has to be estimated This range gives the maximum and minimumlimits of the factor values obtained or estimated for the proposedroads. If we consider the factor, agricultural output, then the rangeO - 10,000 tons would represent the variation in the production anti-cipated in the area of influence of the road.
(v) Common Rating Scale. To reduce various factor values tocommensurate terms, a common rating scale ranging from 0 to 100 isemployed. The use of this scale is demonstrated in the followingexamples:
(a) Factor: Agricultural Output
Range of Factor Values 0 5,000 10,000 tons
Common Rating Scale 0 50 100
(b) Factor: Use of Labor Intensive Technology
Range of Factor Values No Yes
Common Rating Scale O 1001
ANNEX 3Page 5
(c) Factor: Road Construction Cost
Range of Factor Values 10,000 5,000 0 $/km
Common Rating Scale
The rating scheme proposed for the iUustrative example is given inTable 1. It should be clearly noted that the criteria, factors andother related data are specific to this example and must be developedindividually for each new situation.
10. Establishment of Relative Weights for Factors: The relativesignificance of factors is indicated by the weight assigned to eachfactor. 1/ The formulation of representative weights is the most complexpart of the proposed method and requires the interaction of electedofficials, administrators, planners, engineers, and community represen-tatives. Where this type of interaction is difficult to achieve, aselect interdisciplinary committee of experts should be established. 2/A more scientific approach to the determination of factor weights isthe use of attitude surveys. 3/ Criteria weights are the summation ofweights determined for the factors nested under a given criterion. Aset of criteria and factor weights for the illustrative example ispresented in Table 2. It is often desirable to allocate just theweights among criteria and then to assign sub-weights to the respectivenested factors.
1/ David M. Nowlan, "The Use of Criteria Weights in Rank OrdinaryTechniques of Project Evaluation," Research Rsport No. 19, Universityof Toronto-York University - Joint Program in Transportaticn, July 1974,
2/ Thomas A. Dames, "The Urban Planning Process,"i Research Report No. 22,Joint Highway Research Project, Pardue University, West Lafayette, Ind.,July 1972, pp. 1-3b.
3/ See Thomas and Schofer, p. 49.
ANNEX 3Page 6
Table 1: Rating Scheme for the Illustrative Example *
Measuring ParametersCri- Measurement Range of Fajtor Commonterion Factor Units Values 1/ Rating Scale
3/1. Net increase ln Tons of agri- 0 - 10,000 0 - 100agricultural pro- cultural tonsduction in 5th yr. outputof project inception,per km.
I. 2. Net increase in Heads of 0 - 5,000 0 - 100Economic livestock production cattleActivity in 5th yr., per km.
3. Traffic volume. ADT (veh/day) 0 - 100 vebs/dy 0 - 100
4. Cost per km. $ 10,000 - 0 $ 0 - 100
5. Population served No. of persons/ 0 - 1,000 0 - 100per km. km persons
II. 6. Improved access Presence of such Yes 100Social to educational & facilities inService welfare facilities. area of influence No 0
of road
7. Improved access to Additional no. of 0 - 500 0 - 100administrative/ persons brought personsmarket within the 12-hrcenters. Vi tvl.time zone around
the center, per kmof road
8. Employment No. of jobs 0 - 2,000 0 - 100generation. created/km mandays
III.Social 9. Income Use of labor Yes 100& distribution. intensive
Economic technology No 0Welfare
10. Distribution of Percentage of small 0 - 100% 0 - 100social services. farms 5/served within
area of influence ofroad
1/ The range of the factor values is defined by the limits for the factorobtained or estimated for the proposed set of roads. These limits shouldbe stated in the nearest round numbers.
2/ The common rating scale 0-100 corresponds to the range of values obtainedor estimated for the various factors.
3/ Estimated net increase with the road compared to without the road condition.A five-year lag period is allowed to develop full agricultural potential.The total net increase in production is divided by the length of road,tohave uniform and compatible units for the purpose of comparison.
4/ A working definition of accessibility is given in Annex 4.
5/ Small farms are defined as individual holdings under 5 acres.
* Note: There may be a great deal of double-counting, e.g., among factors4, 8, 9'and 10.
ANNEX 3Page 7
Table 2: Relative Weights for Criteria and Factors
1/ Factor WeightCriterion (Weight) Factor (Percentage)
I Economic Activity (50) 1 102 53 104 25
II Social Service (25) 5 156 57 5
III Social and Economic 8 10Welfare (25) 9 5
10 10
TOTAL 100
1/ For description of factors, see Table 1.
Note: The weights assigned to various criteria and factors arespecific to this example and do not have general application.
11. Iput Data Matrix: This represents the data collection phase ofthe technique. The choice of factors in a specific case is dependenton the availability of data. For the factors chosen, data must becollected and tabulated for each proposed road. A tabulation for theillustrative example is presented in Table 3.
12. Rating of Proposed Roads: This step requires the conversion ofvalues obtained in the data collection phase to conmon ratings, whichare then converted to weighted ratings by the application of appropriateweights. The calculations for the illustrative example are presentedin Table 4.
13. Final Screening and Priority Ranking: This is the final step inthe weighted rating method. The proposed roads are first ranked indescending order according to the weighted ratings obtained for eachroad. Then, a cut-off point is established by a consideration ofbudgetary or other constraints, which alternately, can be translatedinto the maximum permissible kilometrage of roads to be constructed.Roads which are placed higher than this cut-off point in the finalranking, should be ccnsidered for further detailed evaluation. Theprocedure, as applied in this example, is demonstrated in Table 5.
ANNEX 3Page 8
Table 3: Input Data Matrix for Proposed Roads
Road No. 1 2 3 4 5 6/ 7
A. Length (km) 70 40 60 100 1.5 30 20
B. Presence of parallel No No No No No No Yesroad within 5 km ofproposed road
C. Factor: 2/ 2/Factor Values
(1) Increased agricul. 4000 30W 0 ?00 zO0 1000 -production
(2) Increased livestock 0 4000 2000 4000 - 500 -stock production
(3) Traffic volume 10 30 20 70 - 5 -
(4) Cost/km 6000 5000 5000 9000 - 9000 -
(5) Population served 200 300 250 900 - 300 -
(6) Access to edu- No Yes No Yes - Yes -cational & healthfacilities
(7) Access to adm. & 170 100 70 490 - 30 -market centers
(8) Employment 1500 1990 1900 1000 - 900 -generation
(9) Income distribution Yes Yes Yes No - No -
(10) Distribution of 70 10 50 80 - 5 -social services
1/ Dropped from further consideration because they do not meet initiallystipulated constraints.
2/ For description of factors, measuring units and range of factor values,see Table 1.
ANNEX 3Page 9
Table 4- Rating of Proposed Roads
RATINCS _ WEIGHTED RATINGS2
Road No. Road No.
Crsteaion Factor Weight 1 2 3 4 6 1 2 3 4 6I Economic I 0.10 40 30 20 90 10 4 3 2 9 1
Activity 2 0.05 0 80 40 50 10 0 4 2 4 0.53 0.10 10 30 20 70 5 1 3 2 7 0.54 0.25 40 50 50 10 10 le 12.5 12.5 2.5 2.5
I} Social 5 0.15 20 30 25 90 30 3 4.5 3.75 13.5 4.5Service 6 0.05 0 100 0 100 100 0 5 0 5 5
7 0.05 34 20 14 98 6 1.7 1.0 0.7 4.9 0.3
III Social & 8 0.10 75 99.5 95 50 45 7.5 9.95 9.5 5.0 4.5Economic 9 0.05 100 100 100 0 0 5 5 5 0 0Welfare tO 0.10 70 10 50 80 5 7 1 5 8 0.5
Total 39.2 48.95 42.45 55.4 19.3
1/ Based on common rating scale.2/ Weighted rating rating x weight,
Table 5: Final Screening and Priority Ranking
Weighted Length of Road Cumulative LengthRank Road No. Rating (km) (hn)
1 4 55.4o 100 100
2 2 48.95 40 140 beRoasto
3 3 42.45 60 200 considered__________ ______________ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~I Cut-off __
4 1 39.20 70 270 i pointRoads not
5 6 19.30 30 300 to beconsidered
- 7 1/ 20 320
_ 5 i/ 1.5 321.5
2. Rejected in initial screening.
w\ ov{
ANNEX 3Page 1u
14. The principal feature of the weighted rating method is itsflexibility. For each road program, it is possible to specify criteria,factors, and weights which are most appropriate. The method isdirectly related to financial constraints,thereby permitting modi-fications in the road program. However, its flexibility is also apotential disadvantage,as it may make selection approaches used indifferent parts of the country mutually inconsistent. The fiscalconstraint that dominates the selection process may itself needserious scrutiny - ideally an iterative fiscal funding system wouldbe preferable. The practical application of the method also requiresconsiderable care, so that personal biases do not influence theidentification (or exclusion) of specific roads. In this regard, theintegrity, judgment and experience of the evaluators are critical factors.
15, Before the approach discussed above is used as a practical tool,it, as well as alternative approaches, should be further developed andtested in practice. For this purpose, some 20 to 30 road projects onwhich careful economic analyses have been made, will be selected forstudy. A number of different sets of selection criteria and methodswill be tested against the economic analysis, with a view to comparingone to the other as far as is feasible, and to avoid the double-countingproblem. The goal is to find a simple technique,for the preliminaryselection of rural roads for further detailed analysis, which willyield better results than random selection and which will haveidentified relationships to economic efficiency, as well as to varioussocial objectives that may be pertinent.
ANNEX 4Page 1
AREA OF INFLUENCE
Introduction
The area of influence of a rural road is defined as thearea served, impacted or modified by a road in its immediate geog-raphical environs. Within this area the implementation of a roadproject is likely to alter the land use pattern, production costsand revenues, and marketing and distribution systems. Rural roadsproviding access from farms to the local markets may serve ascatalysts in the monetization of the local econory.
In quantifying the benefits (other than the conventionalroad user savings) for a rural road project, a critical input is anestimate of the area influenced by the road. Besides a number ofother modifying constraints, there are two primary considerationsin evaluating this area of influence: the first aspect is one ofeconomic efficiency whereas the second consideration is that ofsocial service.
Feview of Past Studies
There is a wide divergence in the estimates of area ofinfluence used in past studies of low-volume rural roads. One re-current theme in delineating the area of influence is the use of themaximum distance from the road in any direction that a person cantravel during one day using any available method of transportation. 2/For a study in Liberia, the zone of influence was defined as thearea within one day's walk of the site of a proposed road - approxi-mately 20 miles in either direction of the road. 3/ In a socio-economicstudy of village access roads in Thailand, the service area of a roadwas taken as the entire area within a 5 km radius of the road which is
1/ Prepared by Asif Faiz, Transportation Department, IBRD.
2/ H. M. Steiner, "Criteria for Planning Rural Roads in a DevelopingCountry: The Case of Mexico."t 1Rport EEP-17 Institute in Engineering-Economic Systems, Stanford University, August 19b5, p. 40. See alsoUN-HMG, Nepal Road Feasibility Study, COMTEC, June 1972, pp. 4.5 to 4.9.
3/ W. R. Stanley, "Evaluating Construction Priorities of Farm to MarketRoads in Developing Countries: A Case Study." The Journal of DevelopingAreas, April 1971, pp. 371-400.
ANNEX 4Page 2
no closer to any all-weather road. I/ These examples show a widevariation in delineating the area influenced by a road and indicatethe need for rational criteria in estimating the area of influence.
Criterion of Economic Efficiency
The pioneering work of Walters 2/ offers a means ofdeveloping an economic rationale for delineating the area of in-fluence of local rural roads.
In Walters' analysis, the area of influence is determinedby transport costs. At the perimeter of the area of influence,transport costs are at maximum whereas rent is at minimum. In orderto make the analysis as simple as possible, the land is consideredhomogeneous with a uniform climate. Without the road, it is assumedthat the land was used for subsistence agriculture or was uncultivated.The yield from the land is assumed eonstant so that the benefits arisefrom an increase in the area under cultivation. To avoid mathematicalcomplications, the analysis is confined to the one crop case, thatis, only one cash crop is cultivated in the area of influence. Withslight modifications,the analysis is equally valid for either a feederroad or an extension of an existing road. 3/
The input parameters for the analysis are:
1. k' = km - c. - - - -(1)
where, k' = price at the beginning of the roadextension or at the junction of a feederroad with the main rcad ($/ton).
km = price at the main market, a distancefrom the road under consideration ($/ton).
c = cost of transportation along mainroad ($/ton-km).
1/ R. Sandler, Socio-Economic Studies of Village Access Roads. FinalReport prepared for World Bank Group, November 1974 (mimeo).
2/ A. A. Walters, The Economics of Road User Oharges, World Bank StaffOccasional Paper, No. 5, 196i, pp. 11
3/ (a) A feeder road is defined as a road link "feeding" into a main roadat any point along the main road. A feeder road improves the accessi-bility of the hinterland in relation to the market centers.
(b) A road extension is defined as a longitudinal extension of anexisting road beyond its terminal end. Ideally a road should bebuilt in stages, each stage being an extension of the road alreadyconstructed.
ANNEX 4Page 3
2. k = k' - f ---- (2)where, k = price at the beginning of the road extension
or at the junction of feeder road/main roadminus the production costs ($/ton). This isequivalent to the net income received bythe producer.
f = cost of factor inputs (production costs),excluding transport costs, per unit of outputat the beginning of the road extension or atthe junction of feeder road/main road ($/ton).
3. a = cost of transportation along feeder road or extendedroad section 1/ ($/ton-km).
4. b = cost of transportation off the road ($/ton-km).This may be the cost of headloading or transportationby a less efficient means, e.g., ox-carts.
5. x = length of proposed road (km).
Basic Relationshis: Using Walters' method of analysis, the potentialareas o1in=uence of a road extension and a feeder road are shownin Figures 1 and 2 respectively. The analytical expressions for thearea of influence in terms of k, a, b, and x area given as follows:
If A = area of influence (km2 )Then for,
2k 2 22(a) Road Extension: A =S-(1 - a/b)x - (a/b - a /b )x2
for x = O to k/a ---- (3)
(b) Feeder Road: (i) A =-i 1 - a/b)(2k - a)for x = O to k/b -- - - (4)
(ii) A = (1 - a/b)x - (a/b - a/b)for x = k/b to k/a - - - - (5)
1/ The cost of transportation on the extension of the main road may bethe same as the cost of transportation on the main road.
ANNEX 4Page 4
A
-o ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~kx
k-xa ~ -xb~~~~
k/b/
I'~~~~~ _
B = Terminus of Main Road, XBBJ= Max. Length of Road ExtensionBF = Proposed Length of Road Extension (x)ACD = Area of Influence Without
the Road Section, BF.ACGHEA = Area of Influence with the Road
Section, BF.
FIGURE 1: AREA OF INFLUENCE ASSOCIATED WITH AROAD EXTENSION
ANNEX i
Page
(a) x = 0 to k/b
wA
M
x (1-a/b)V F 1 (1-a/b)
x (1-a/b)
/ ~~NC k/b x,f * (1-a/b)
BF = Proposed Length of Feeder Road (x).BJLKB = Area of Influence of Feeder Road of Length, x.ABC = Main Road.BD = W Width of Land Cultivated with Cash Crops before
Construction of Feeder Road.
(b) x = k/b to k/a ABC = Main Road.BF = Proposed
Length ofFeeder Road (x).
W b BMJLKNB = Area ofInfluence of
AW o__Feeder Roadm I us -__ M of Length, x.
- - ~ ~ ka
k/a b< . b~~~~~~~~~~~
FIGURE 2: AREA OF INFLUENCE OF FEEDER ROAD.
World Bank-16162
ANNEX 4Page 6
Extensions of Basic Relationships: Owing to the restrictive under-Jy-ing assumptions, the relationships for the area of influence needto be modified to permit practical application. By incorporating thefollowing modifications in the basic relationships, more realisticestimates of the area of influence may be obtained:
1. Assuming that transport costs are the majordeterminant of the area brought under cultivationof cash crops, the decision to expand productionis triggered by a reduction in transport price,as perceived by the producer in the form of higherproduce prices and the corresponding profits.Transport price reflects transport cost only underperfect competition and even then transport cost isthe sum of all transport expenditures (for operatingcosts, middlemen, forwarders, traders, etc.) Thereforeit is proposed that transport cost factors ta' and 'c'should be redesignated as transport price factors. Therefore:
a = transport price along road extension/feeder road($/ton-km).
c = transport price along main road ($/ton-km).
2. The lateral width of the area of influence is derived asa function of the transport cost off the road. At theperimeter of the area of influence, transport costsaccount completely for the producer's surplus (kt-f)and the producer is indifferent between cash cropfarming and subsistence farming. It has been notedthat besides transportation costs, unit productioncosts also tend to increase as the distance from theroad increases. Chisholm states "if the intensity offarming remains constant at all distances, the totalcost of cultivating land rises by over 20 percent forevery kilometre." 1/
3. The factor 'b' needs to be modified to account forthe increase in production costs as well as transport
1/ M. Chisholm, Raral Settlement and Land Use, Hutchinson UniversityLibrary, London 1,962, p. 5Z.
ANNEX 4Page r
costs with increasing distance from the road. Therefore:
b - bt + bp - - - - (6)where b - increase in total cost of production
per ton-km ($/ton-km).bt = transport cost off the road ($/ton-km).
bp = increase in production cost ($/ton-km).l/
4. It is possible to extend the basic relationships totake into account multiple crops with different transportand production characteristics (see Walters, pp. 165-166).Howevar, the basic model would beoome unwiel t anddifficult to apply. Alternately, the input parametersmay be reinterpreted as a weighted average of the para-meters for each crop.
Parameters Required to Delineate the Area of Influence: The inputdata needed in delineating the area of influence are:
1. The commodities (crops, livestock, dairy products,fruits and other products) produced in the area ofinfluence and their respective proportion in theexportable surplus. The exportable surplus is definedas the quantity produced minus domestic consumption.
2. For each commodity the following input parameters:
km = price at the main market, a distance Q (km) from theroad under consideration ($/ton).
k' = price at the beginning of the road extension orat the junction of a feeder road with the mainroad ($/ton); = km - c.X.
k = price at the beginning of the road extension or atthe junction of feeder road/main road adjusted forproduction costs ($/ton). This is equivalent tothe net income received by the producer (k' - f).
1/ For the sake of simplicity, it is assumed that production costsincrease linearly with distance from the road. There is someevidence that the increase should be a function of distancesquared. For example, land rents tend to vary inversely with thesquare of the distance from tne market center or city center.
ANNEX 4Paige 8
f = cost of factor inputs, excluding transport costs,at the beginning of the road extension or at thejunction of feeder road/main road ($/ton).
a = transport price along road extension orfeeder road ($/ton-km).
c = transport price along main road ($/ton-km).
b = increase in total cost of production perton-km ($/ton-km).
bt = transport cost off the road ($/ton-km).
bp= increase in production cost ($/ton-km).
x = length of proposed road (km).
Note: A very rough approximation of b may be obtained as:
bapprox. =k v - - - - (7)where w = width of cultivated land (only that
used for cash crops) along main road (km)-
3. For the delineation of the area of influence, a weightedaverage of the input parameters for each commodity shouldbe used. 1/ The parameter for each commodity is weightedby the proportion of the commodity in the exportablesurplus (tonnage).
Criterion of Social Services
Rural roads play a significant role in extending basic socialservices (schools, medical facilities, police and fire protection, reliefservices in disaster areas, etc.) to a wider segment of the rural popu-lation. The extension in the service area relative to the provision ofessential social services, as created by the construction of a new road,may be considered as the area of influence of the new road.
The area over which accessibility to essential services isimproved by the provision of a new road may be delineated by thefollowing methods:
1/ For an illustrative example see, A. Faiz and C. Carnemark, "Area ofInfluence and Geometric Configuration of Low Volume Rural Roads,"January 1976 (Draft).
ANNEX 4Page 9
First Method. The area of influence of the road, relative tothe provision of basic social services, may be defined as the areacontained within the perimeter that can be reached from the road align-ment in a given period of time by non-motorized transport (travel byanimal-drawn vehicles, bicycles, foot or any other relevant mode).
This delineation of the area of influence assumes that onlypeople living within the perimeter defined as above would be willingto take advantage of the improved accessibility to social servicesprovided by the road. Outside this area the social impact of the roadwould be minimal. A geometric representation of the area of influenceis given in Figure 3.
It should be noted that by using an appropriate travel timeto suit specific geographical and cultural environments, realisticareal limits of the area of influence may be defined.
1. Feeder Road
A ABC = Main Road.BD = Feeder Road.
d E HE = LG = Width of AreaH IE Influenced by
Main Road
by Feeder Road BD.
G d = Distance from the Roadc Allignment that may be
Covered in a Given Time2. Road Extension by Available Transporta-
tion ModeC
AB = Portion ofB /~ E Dl /Main Road.
A------. I G BD = Road Extension.CEF = Area of Influence
without Road
______ Extension, BD.CBFGC = Area of Influence-dt with Road
Extension, BD.
FIGURE 3: AREA OF INFLUENCE DERIVED FROM A CONSIDERATIONOF THE SOCIAL SERVICE CRITERION
ANNEX 4Page 10
Second Method. This approach views the proposed road linkas part of a hierarchal road network tied to nodal points. A markettown, administrative headquarters or any other activity center mayrepresent a nodal point.
The first step is to determine the accessibility of thesurrounding area, relative to a designated nodal point, using theexisting network. The next step is to determine the change inaccessibility produced by the addition of the new road link. Thenthe area affected by the incremental change in accessibility is thearea of influence of the proposed road link.
Improved accessibility 1/is synonymous with a reduction inthe friction of space and may be 'efined either in terms of a distanceor a travel time measure. For this type of analysis, a travel timemeasure is recommended. As an input to the analysis, it is necessaryto define an upper limit on the travel time to the designated node.TWnere the actual travel time exceeds the upper limit, it is assumedthat the possibilities of economic travel (in terms of time) to thedesignated node would be severely limited.
This approach may also be applied to determine the area ofinfluence of a road in terms of improved accessibility to specificservices such as schools, hospitals, etc.
A simplified example of this approach is shown in Figure 4.
Modifying Factors
The area of influence developed from the criterion of eithereconomic efficiency or social service does not take into account theconstraints resulting from:
1/ For a discussion on measures of accessibility, see "Accessibility -Its use as an Evaluation Criterion in Testing Alternative Trans-portation Systems,' FHWA, Highway Planning Technical Report,No. 28,July 1972.
ANNEX 4Page 11
1. Road ExtensionxC M D
---12 hr.--:Travel timecontour
MA = Existing RoadAB = Road Extension
Area CFEGDMC:=Area of Maximum travel time fromInfluence of Road MA Market M = 12 hours
Area FHG (hatched) = Area ofInfluence of Road ExtensionAB AG
12hr. 1 12hr.
H
2. Feeder RoadC M D
--12 hr.--:Travel timecontour
(0 c
Maximum travel timefrom Market M = 12 hours
y~~~Yf A
F--G
E
MAC = Main RoadAB = Feeder RoadCFEGDMC = Area of Influence of Road MC (Arterial)XYZ (hatched) = Area of Influence of Feeder Road AB
FIGURE 4: AREA OF INFLUENCE DERIVED FROM IMPROVEDACCESSIBILITY CONSIDERATIONS
ANNEX 4Page 12
(1) Topography (rivers, mountains, valleys, etc.)
(2) Differences in distribution of soils and their fertility.
(3) Climatic variations in the area of influence and theireffect on agricultural production.
(4) Presence of other existing or planned transport linksin the vicinity of the proposed rural road.
(5) Cultural patterns.
(6) Other factors of a local nature.
Hence, the relatively theoretical area of influence developedby the approaches in the previous sections should be modified by theindicated constraints to result in a physically realistic area ofinfluence.
Other Techniques of Delineating the Area of Influence
1. Interview Method
In regions where market towns can be identified, it is possibleto determine the area influenced by the market town (node) and itsassociated roads,by conducting a sample origin-destination survey ofthe people transacting at the market town. The information so obtainedmay then be used to develop approximate guidelines for determining thearea of influence of proposed roads in the same area or another areahaving similar characteristics.
2. Use of Aerial Photography and ERTS Imagery
(a) The area of influence of a proposed road may be delineatedby interpreting aerial photographs of the region where the road is to belocated. The exercise would be similar to the one used in outlining thewatershed of a stream system. In delineating the area of influence, theproposed road would be the equivalent of tributary streams. The land usepatterns developed from aerial photographs together with "ground truthing,"would also aid in demarcating the extent of the area of influence.
(b) At the present time, it is difficult to use ERTS imageryfor determining the area influenced by a road because of its small scale(approximately 1:1 million). However, ERTS imagery does offer a potentialmethod to be used for this purpose when better tools are available fordetailed interpretation of the imagery.
ANNEX 4Page 13
Conclusions
In implementing the procedures presented in this Annex, itis necessary to view the various criteria and factors discussed in thepreceding sections as means of arriving at the final product: a realisticand reasonable area of influence.
The most important element in the process of determining the areainfluenced by a proposed road is the judgment and past experience of thepersons involved in planning the road.
As aids to this process of judicious estimation,the followingcovments are offered:
1. The geometric outline of the areas of influence, asadjusted by modifying constraints, should approximatelyconform to the shapes derived from the analysis usingeconomic and social service criteria, as presented inthe previous sections.
2. In determining the lateral width of the area of influence,a key factor is the rate of increase of cost of productionper ton-km. This factor may be determined in the field bya point survey.
3. The estimates of area of influence evolved from thecriteria of economic efficiency and social service,shouldbe used as order of magnitude checks on the area of in-fluence developed by field surveys or the use of aerialphotography.
4. Where the input parameters or the underlying assumptionschange significantly along a proposed feeder road, thearea of influence may be determined separately forvarious sub-sections of the feeder road.
ANNEX 5Page 1
DESIGN STANDARDS
1. As noted in the text of the paper, the issue of designstandards for rural roads is important regardless of the measure ofproject benefits used. Rural roads require design standards thatcorrespond to their low traffic volumes. Though this observationseems obvious, many so-called "feeder roads" have been and continueto be constructed at inappropriately high standards and thus ex-cessive costs.
2. The professional standards of many conaulting engineers mayhave something to do with this. The most appropriate design and costper kilometer for a rural road with low traffic volumes should beconsiderably lower than those standards which most consulting engi-neers are accustomed to in designing secondary and tertiary roadnetworks. In view of the fact that road maintenance is weak in manydeveloping countries, many engineers are naturally reluctant toassociate themselves with a road that is likely to have occasionalwashouts. However, an occasional washout may be perfectly acceptableand efficient in an economic sense (if someone comes forth to repairit), particuilarly if the aim is to provide basic access for as manyvillages as possible.
3. In many rural areas, good access during the dry season andminimum access during the wet season are the only design criteria thatare economically justified. The insistence of highway authorities onconstructing rural roads of a higher standard, often does not makegood economic sense. Therefore instead of making the improvement ofrural roads an "all or nothing" proposition, it should be recognizedthat an improved earth track is better than no access at all. Moreover,the lower the cost of each individual road section, the larger thenumber of villages which can be provided with basic access.
4. In light of the above, we would suggest the lowest possibledesign standards for rural roads (making use of labor-intensive con-struction methods where economically feasible). Many Case II ruralroads, where initial vehicle traffic may not exceed 5 to 10 vehiclesper day, should be built at rock-bottom design standards. This wouldin practice,mean a handmade, bulldozed or graded track following theground profile, with the central crown of the roadway surface beingraised by using earth excavated from drainage ditches. Gravel, con-sisting of locally available material, would be provided selectivelyin needed areas. Particular attention would be provided to drainage,which is essential. The clearing width of such a road would be 7 to10 meters with a roadway of 3.5 to 5 meters.
ANNEX 5
5. The roads would be further improved as required, particularlythrough the addition of more gravel, as traffic volumes increase withagricultural and other development.